Marys Medicine

Wp-brodd-r3.qxd

ATP Working Paper Series
Working Paper 05–01
Factors Affecting U.S. Production
Decisions: Why are There No Volume
Lithium-Ion Battery Manufacturers
in the United States?
Economic Assessment Office Advanced Technology Program National Institute of Standards and Technology Gaithersburg, MD 20899-4710 Broddarp of Nevada, Inc.
Under Contract: SB 1341-02-W-1446 The United States has been an incubator for new technologies for rechargeable batteries,while Asian companies have developed the manufacturing expertise and made the requisite capital investment to profit from these technologies. This investigationexamines the circumstances attending lithium-ion (Li-ion) battery developments as avehicle to seek a better understanding of the factors affecting decision-making of U.S.
manufacturers, specifically addressing the question: "Why are there no volume Li-ionbattery manufacturers in the United States?" The United States has been an incubator for new technologiesfor rechargeable batteries, while Asian companies have devel-oped the manufacturing expertise and made the requisite capital investment to profit from these technologies.
This investigation examines the circumstances attendinglithium-ion (Li-ion) battery developments as a vehicle toseek a better understanding of the factors affecting decision-making of U.S. manufacturers, specifically addressing thequestion: "Why are there no volume Li-ion battery manufac-turers in the United States?" The conclusions are: The U.S. battery companies "opted out" of volume manu-facturing of Li-ion batteries, primarily because of a lowreturn on investment compared with their existing busi-ness, the significant time and investment required fromconception to commercialization, and the time andexpense required to establish a sales organization in Japanto access product design opportunities and take advantageof them.
Labor costs were not a major issue impeding large-volumeproduction of the cells in the United States. The cost oflabor in the United States was essentially the same as for theJapanese manufacturers domestically. The Asian strategy ofproviding facilities and loans to establish manufacturinglocally and create jobs was a more important factor.
Structural differences of the Japanese electronic productsindustry compared with the U.S. counterpart create barri-ers for U.S. firms seeking to market rechargeable batteriesor battery materials in Japan. In markets for rechargeable ATP Working Paper
batteries, customers are large, high technology-based elec-tronics companies with their own battery manufacturingcapability. Developing a product requires close contactwith portable electronic device designers, which is moreeasily accomplished within the vertically integrated Asiancompanies than in the U.S. system where battery compa-nies have little access to device designers.
The tendency could be for technological development tofollow manufacturing to East Asia, as a natural conse-quence of developing manufacturing expertise. Primary aswell as rechargeable battery production will slowly shift toChina, Korea, and Southeast Asia. U.S. manufacturerspursuing other budding energy technologies, such as fuelcells, will face similar issues.
Opportunities still exist for U.S. companies to successful-ly enter niche markets, such as those with medical, mili-tary, or space applications. Mechanisms for cooperationbetween government-academia and industry need to beimplemented to assure that advanced materials technolo-gies have the resources and direction to succeed.
A Message About the Study
U.S. companies have made decisions not to become majorcommercial players in high-volume applications of recharge-able battery technology despite being at the forefront of itsdevelopment. The situation is similar in other specific tech-nology areas. ATP commissioned this study to understandwhat industry factors—global and domestic—affect the deci-sions of companies to make the investments needed for high-volume production in rechargeable batteries and certain othertechnology-based products. Learning more about these fac-tors can assist ATP in evaluating the quality and credibility ofproposals for ATP funding against the business-economic cri-teria and in assessing on-going commercialization planning.
To address this issue, we engaged Dr. Ralph Brodd, an inter-national consultant with a long career in development andcommercialization of battery technologies. For this study, Dr.
Brodd conducted over 40 structured interviews with manage-ment individuals spanning major battery companies, materi-als and component suppliers, venture capital firms, start-upcompanies, original equipment manufacturers (OEMs), uni-versities, and government and military officials.
Dr. Brodd has woven a story from this collection of interviewsand his findings are documented in the study. As intended,the study presents the collective, peer judgment of interna-tional battery experts and is more anecdotal in nature thanscientifically researched. The study confirms many precon-ceptions, and provides rich material for future study as ATPcontinues to seek a greater understanding of the factorsimportant to the commercialization of new technologies and ATP Working Paper
the complex pathways associated with delivering benefits inan international industry.
Jeanne Powell, Senior Economist and Contracting Officer's Technical Representative Economic Assessment Office, Advanced Technology Program Gerald Ceasar, Program Manager Information Technology and Electronics Office, Advanced Technology Program About the Author
Ralph James Brodd is President of Broddarp of Nevada, Inc., aconsulting firm specializing in technology assessment, strate-gic planning and battery technology, production, and market-ing. He received a B.A. degree in chemistry from AugustanaCollege, Rock Island, Illinois, and M.A. and Ph.D. degrees inphysical chemistry from the University of Texas at Austin.
Dr. Brodd began his career at the National Bureau ofStandards in Washington, D.C., studying electrode reactionsand phenomena that occur in battery operation. He taughtphysical chemistry in the U.S. Department of AgricultureGraduate School and lectured in electrochemistry atGeorgetown University and American University.
In the 1960s and 1970s, Dr. Brodd served in a variety of tech-nical and management capacities with a number of batterycompanies. In 1961, Dr. Brodd joined the L.T.V. research Centerof Ling Temco Vought, Inc., in Dallas, Texas, where he estab-lished a group in fuel cells and batteries. In 1963, he moved tothe Battery Products Technology Center of Union CarbideCorporation, with technical management responsibilities fornickel-cadmium and lead acid rechargeable batteries, alkalineand carbon-zinc product lines, and exploratory R&D. Hejoined ESB (INCO Electroenergy, Inc.) in 1978, establishing atechnology surveillance group, and moving to the position ofDirector of Technology with oversight and policy responsibili-ty for R&D laboratories serving product areas ranging from pri-mary and secondary batteries to uninterruptible power suppliesand small electric motors. He was a member of the INCO LongRange Technology Committee and the technical advisory panelfor North America Capital Venture Fund.
ATP Internal Report
In 1982, Dr. Brodd established Broddarp, Inc., a consultingfirm specializing in battery technology, strategic planning,and technology planning. A consultancy with Amoco led tohis moving to Amoco Research Center as project manager ofa rechargeable lithium sulfur dioxide battery project. He sub-sequently moved to Gould, Inc., to establish their LithiumPowerdex Battery Venture and then to Valence Technology, aventure group developing a solid polymer electrolyte batterysystem for rechargeable batteries for portable consumerdevices. He served as staff consultant/marketing director andthen Vice President, Marketing.
Dr. Brodd was elected President of The ElectrochemicalSociety in 1981 and Honorary Member in 1987. He was elect-ed National Secretary of the International Society ofElectrochemistry, 1977-1982, and Vice President, 1981-1983.
He is past chairman of the Board of Directors of theInternational Battery Materials Association. Dr. Brodd wasPresident of the Pi chapter of Phi Lambda Upsilon.
Dr. Brodd has served on numerous technical advisory andreview committees for the National Research Council,International Electrotechnic Commission, DOE, NASA, andNIH government laboratories and technical programs, mostrecently as a member of the 1999 and 2004 ReviewCommittee for the Environmental Energy TechnologiesDivision of Lawrence Berkeley National Laboratory. Dr. Broddhas over 100 publications and patents.
I gratefully acknowledge the helpful discussions and commentswith Jeanne Powell, Gerald Ceasar and Kathleen McTigue(NIST Advanced Technology Program) during the course ofthis study. I thank the ATP reviewers, Stephanie Shipp, ConnieChang, Elissa Sobolewski, and Lorel Wisniewski. BrianBelanger, former Deputy Director of ATP, provided additionalcomments. In addition, a special thank you to each of the people that I interviewed. I especially thank Dr. NormanHackerman, my thesis advisor who got me started on the righttrack many years ago. His insight into the nature of the transi-tion from a research project to a viable commercial product (inConversations on the Uses of Science and Technology by NormanHackerman and Kenneth Ashworth, Univerisity of North TexsPress, Denton, TX, 1996) cuts through the mysterious conceptsthat surround the transition between research and a final com-mercial product.
The United States has continued to lead in developing newtechnologies and is the major source for new concepts in bat-tery, fuel cell, and other budding technologies supporting thenation's energy and portable communications future. Asian andEuropean companies, however, are developing the manufactur-ing expertise to commercialize many of these technologies.
In the area of advanced rechargeable batteries, and other areasas well, the Advanced Technology Program (ATP) has fundedprojects that were technically successful, but where the out-look for U.S. companies' becoming major commercial playersin high-volume applications is not promising now. U.S. com-panies have opted out of many markets. ATP seeks to betterunderstand the factors affecting commercialization of tech-nology as a means of: providing guidance for the proposal evaluation and selec-tion process, aiding in monitoring the business opportunities progressof technologies currently under development, and contributing to the development of U.S. science and tech-nology policy.
This study uses the case of lithium-ion (Li-ion) batteries toseek a better understanding of industry factors that affect theintroduction of new rechargeable batteries and similar typesof technologies into the marketplace.
ATP Working Paper
Li-ion batteries power the devices of the digital revolution— including telephones, music players, digital cameras, andnotebook computers. Today's typical mobile phone owes itssize and weight reductions largely to the advent of the Li-ionrechargeable battery.
Over the past 10 years, the market for Li-ion systems hasgrown from their commercial introduction with minimal pro-duction in 1992 to over $3 billion in 2003. This technologysparked the expansion of cellular telephones and notebookcomputer applications. Production of Li-ion cells originallycentered in Japan, but new manufacturers with significantproduction capability have now appeared in China and Korea.
U.S. researchers were once on the leading edge of key techni-cal developments enabling the Li-ion battery systems in usetoday. The National Electronics Manufacturing Initiative(NEMI) roadmap studies recognized advanced rechargeablebatteries as a critical component in the growth of portableelectronic devices. The U.S. battery industry was aware of theimportance of this emerging technology, but did not try tocompete with stronger players overseas. In spite of the rapidgrowth of this important market segment, the United Stateshas no large volume producers of this technology. There areseveral reasons for this.
The U.S. battery companies "opted out" of volume manu- Why are there
facturing of Li-ion batteries, primarily because of a low no volume
return on investment compared with their existing busi- ness. Duracell and Energizer both started, but later aban- doned, programs for production of rechargeable Li-ion in the United
batteries. They decided not to compete with companies based in East Asia, which can tolerate lower profit marginsdue to structural advantages in their home countries. A Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

secondary consideration was the time and expenserequired to establish a sales organization in Japan to accessproduct design opportunities.
The cost of labor is not as significant as is commonlybelieved. Production of Li-ion batteries consists of bothunit-cell production (which can be automated to a highdegree) and battery pack assembly (which is most costeffective as a manual process). Automated unit cell produc-tion offsets the advantage of locating production in EastAsia. However, establishing an automated production facil-ity requires a minimum investment of about $120 million.
Sales and marketing of rechargeable batteries differ signif-icantly from the marketing of primary batteries, whereU.S. firms have a strong marketing and distribution net-work. In rechargeable batteries, customers are large, hightechnology-based electronics companies. Developing aproduct requires close contact with portable electronicdevice designers who choose the battery to power thedevice. Most producers of portable electronic devices arelocated in Japan in companies that are both producers anduser/customers of rechargeable batteries.
American companies are better able to compete in small-scale, high-quality, high-profit-margin niche rechargeablebattery markets, such as those with medical, military, orspace applications, rather than in large-scale production.
American manufacturers will continue to be competitivein the market for primary batteries. Their strengths lie intheir distribution networks and in marketing coupledwith low-cost, highly-automated production.
No simple explanation accounts for the lack of a large-scale producer of Li-ion batteries in the United States. Thesubsequent discussion, however, provides reasons for thedominance of companies from East Asia in this arena.
ATP Working Paper
Several East Asian countries, including China, South Korea, Taiwan, and Malaysia, as well as Japan, have internal struc- Affecting
tural advantages for domestic companies over what U.S. com- panies experience at home; these encourage commercializa- tion of new technology. Some European countries have alsodeveloped such advantages, but Japan is the archetypicalexample. These structural advantages include: Lower Cost of Capital—More significant than lower labor
costs, many countries have a better investment climate
than has the United States. The cost of capital is lower in
Japan because of its greater availability (owing to high sav-
ings rates). Because unit cell battery production is highly
automated, labor costs are a relatively minor component
of cell production costs.
Reliance on Loans rather than Stock Sales for Operating
Capital
—American companies tend to focus on short-
term profits and stock prices, while Asian companies seek
market share. American managers are held accountable
and valued based on company profitability and stock
price. Asian managers are more likely to defer near-term
profits in favor of investing for long-term success as
reflected in market share. Japanese companies rely more
on bank loans to fund R&D and new production facilities.
Government Coordination of R&D—The Japanese gov-
ernment works with industry to identify new technologies
that are ripe for near-term economic exploitation.
Government then encourages companies that will eventu-
ally be competing with each other to share information
and cooperate during the early stages of development.
This contrasts with the U.S. pattern of business-govern-
ment relations, which can sometimes be adversarial.
American companies sometimes move production to EastAsia to take advantage of government incentives or lower Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

labor costs. This inevitably results in an eventual transfer oftechnology to the host countries—product as well as produc-tion technology. Batteries are only one example. Two othersconsidered in this study were fuel cells and electronic chipsand components. Fuel cells have a short window of opportu-nity to begin manufacture in the United States. Manufactureof electronic components, such as displays, will likely followthe course of IC chips and Li-ion batteries to Asia.
These factors should be kept in mind when ATP evaluates thelikelihood that new battery and related technologies will becommercialized in the United States. These are the factorsthat have demonstrated the most leverage in U.S.-firm decision-making. Although Japan has lately been sufferingeconomic malaise, it is a misperception that the advantagesthat Japan enjoyed though the 1980s no longer apply.
The United States still leads in developing new technologies and is the major source for new concepts in battery, fuel cell,and display technologies. The United States is an incubatorfor new technologies relating to the electronics industry,while the Asian and European companies develop the manu-facturing expertise. There could be a tendency in the futurefor technological development to follow manufacturing inmoving to East Asia as a natural consequence of Asian com-panies' development of manufacturing expertise.
Table of Contents
A Message About the Study .iii About the Author.v Executive Summary .ix Background.xWhy are there no volume Li-ion manufacturers in the United States? .x Factors Affecting U.S. Production Decision .xiiConclusion.xiii I. Introduction .1 Study Objectives .1Methodology.3 II. Rationale for Li-ion Case.5 U.S. Activity in Li-ion R&D .5U.S. Manufacturing of Li-ion Batteries .8 III. The Innovation Process for Battery Technologies .17 IV. Structural Factors Affecting Production Decisions Manufacturing and Marketing Infrastructure .22Supply Chain Structures .24R&D Planning Horizon and Return on Investment.27Project and Employment Security .29Replacement Market .29Logistics.30Venture Capital .31Company Loyalty.32Labor Costs.32Capital Costs of New Facilities.35R&D Costs.36 ATP Working Paper
Interest Rates .37Intellectual Property.38Litigation Exposure.39Government Policies .40Human Resources .42 V. Conclusion: Why Are There No Volume Li-ion Manufacturers in the United States?.45 VI. Implications for Other Technologies .49 Fuel cells.49Displays and chip fabrication.51Further Work Needed.52 Appendix 1. Interview Questions and Discussion Appendix 2. List of Organizations Represented in Interviews .59 Appendix 3. Li-ion Batteries: Market Trends.61 Appendix 4. Comparison of Battery Technologies .65 Appendix 5. Li-ion Batteries: Market Participants.71 The Advanced Technology Program (ATP) is a government- industry partnership that cost shares with private industry the funding of high risk R&D with broad commercial and societal benefits. These projects would not likely be under-taken otherwise because the risks are too high or the benefitswould not accrue to private investors. Through a competitiveselection process, ATP chooses projects by applying evaluationcriteria, (1) scientific and technological merit (50 percent), and(2) potential for broad-based economic benefits (50 percent).
ATP source evaluation boards are thus charged with assessingthe potential economic benefits to the United States of projectsunder consideration for funding as well as the technical merit.
It is anticipated that the major benefits accrue through cre-ation of new products and processes embodying ATP-fundedtechnologies and their successful commercialization. Of pri-mary interest to this publicly-funded program are the benefitsto industries and individual consumers and users of thesetechnologies, rather than to the individual companies that arefunded directly. U.S. technology users benefit from goods pro-duced off shore as well as those produced domestically.
Nevertheless, offshore production will change the flow ofbenefits from a U.S. investment in R&D and may reduce thebenefits to the United States. The ATP seeks to better under-stand the factors affecting commercialization of technology inthe United States by U.S. companies as a means of: Providing guidance to the proposal evaluation and selec-tion process; ATP Working Paper
Aiding in monitoring the business opportunities progressof technologies currently under development; and Contributing to the development of U.S. science and tech-nology policy.
This study uses the case of Lithium-ion (Li-ion) batteries toinvestigate factors affecting decisions of U.S. companies to setup production for new battery technologies. U.S. scientistshave spearheaded R&D in areas where the dominant manu-facturers are now abroad. Lithium-ion batteries, which powerthe devices of the digital revolution—including telephones,music players, digital cameras, and notebooks—are a case inpoint. Today's typical mobile phone owes its size and weightreductions largely to the advent of the Li-ion rechargeable bat-tery. Yet despite many years of electro-chemical research inthe United States, Japanese companies took commercialadvantage of the innovation and transformed it into a usefulproduct, while U.S. companies did not.
With the assumption that future battery and other technolo-gies may be expected to experience commercialization path-ways similar to the Li-ion case, this study seeks answers to thefollowing questions: a. Why are there no large volume producers of rechargeable Li-ion batteries in the United States? b. What are the factors affecting the introduction of new technology into the marketplace? c. What are the implications of the findings for other devel- oping technologies, for example, fuel cells, displays, andother electronic components? Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

We conducted interviews with more than 40 individuals in the lithium-ion battery industry worldwide to establish therelative impact of various factors on investment and manu-facturing decisions of Li-ion battery manufacturers and toidentify the principal factors that have limited the develop-ment of large volume production of rechargeable Li-ion bat-teries for the portable electronic market in the United States.
The interviewees included individuals in industry, govern-ment, and academia. Individuals interviewed from industryincluded representatives from materials suppliers and elec-tronics firms that use Li-ion batteries in their devices as wellas representatives from battery manufacturers serving in tech-nology, management, and marketing positions. Appendix 2lists the company affiliations of the individuals interviewed.
Each interviewee received a list of questions in advance thatserved as a guide to the interview process. Appendix 1 liststhe questions used to guide the personal interviews.
Interviews did not always follow the sequence of the listedquestions. The interviews were conducted in a free-flowingmanner, allowing the experts to focus on what they consid-ered to be most important factors influencing productiondecisions of Li-ion manufacturers.
Their responses assisted us in identifying and analyzingstructural differences that appeared to account for disparitiesin Li-ion industry outcomes in the United States and Asiancountries.
II. Rationale for Li-ion Case
U.S. scientists have long spearheaded research and develop-ment in various battery chemistries, and U.S. battery manu-facturers have maintained dominant positions in the primarybattery market. North American researchers provided many ofthe critical technology breakthroughs needed to establish Li-ion battery feasibility. Yet today, the dominant secondary(rechargeable) battery manufacturers are abroad, and U.S.
manufacturers appear only in niche markets and boutiqueapplications.
A National Electronics Manufacturing Initiative (NEMI) U.S. Activity in
study pointed out the advantages of the Li-ion technology in Li-ion R&D
the mid 1990s. This study designated Li-ion as a critical tech-nology in the development of portable electronic devices. In1998, the NEMI, which is made up of the major U.S. elec-tronic manufactures and suppliers, stated: The rechargeable battery technology has long been acritical bottleneck in development of improvedportable electronic products for communications andinformation sectors. While the United States is a leaderin advanced battery research concepts, it is verticallyintegrated foreign competitors that have come in the1990s to dominate the two new rechargeable batterytechnologies: Ni-MH (employed in mobile computingsince 1993) and Li-ion/liquid electrolyte batteries. In 1998, the National Electronics Manufacturing ATP Working Paper
Initiative (NEMI) laid out a technical roadmap (1) withtargets that, if achieved, would result in performancesignificantly improved over today's batteries: Gravimetric energy density: 250 Wh/kgVolumetric energy density: 475 Wh/lCycle life: 2000Cost: $1/Wh.1 Today, typical cells have exceeded the Wh/l goal (500 Wh/l)and the cost target ($0.30/Wh) and are approaching the 250Wh/kg goal. In addition, research results on new materialsoffer the possibility of doubling the energy goals. For the firsttime, a rechargeable system has greater energy storage capa-bility than the standard alkaline cell. This will have strongimplications for the future of primary batteries, as the cellulartelephone and notebook computer have taught the disciplineof recharging the battery in a device on a regular basis.
Over the past few years, the battery industry has seen a majorshift in the technology for portable power applications. Li-ionbatteries, which did not come into existence until the early1990s, have become a standard for high-energy rechargeablebattery technology and have captured the bulk of the portabledevice market. They have four times the energy and twice thepower capacity of nickel cadmium (Ni-Cd) batteries, do notexperience memory effect (where partial discharge beforerecharge reduces length of next cycle), and have a 50 percentlonger life cycle. Compared with nickel-metal hydride (Ni-MH) batteries, they have twice the energy, and they can beproduced at a much lower cost. They are environmentallyfriendly, and their high average voltage of 3.6V make themideal for powering a new generation of low-power 3-G elec-tronics. These factors all have contributed to this relativelynew battery technology's complete domination of the note-book computer and cellular telephone markets.
1. NEMI Technology Roadmap, December 1996, p. 117.
Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

Without the Li-ion battery, introduced a decade ago,portable electronic products—from mobile phonesand video cameras to notebooks and palmtops—would have remained brick-like objects best left on thedesk or at home. But the innovation would have floun-dered had electro-chemist researchers in the U.S. andEngland not teamed up with a Japanese firm.
The development of the lithium-ion battery is anobject lesson in how pure and applied research drivenby commercial interests, can generate incrementalimprovements in a technology that are necessary fortransforming it into a useful product. In this case,intercalation compounds were an offshoot of pureresearch into superconductivity. They were thenpicked up by Dr. Goodenough and other researchersworking on battery technology; and the final pieces ofthe puzzle were supplied by Asahi Chemical andSony. (Dr. Goodenough, who did his original researchat Oxford [and later work at University of Texas-Austin], says battery firms in the West rejected hisapproaches).2 The United States has been, and is, a very fertile ground fordeveloping new technologies for application in the advancedbattery arena. North American researchers provided many of the critical technology breakthroughs required to establishLi-ion polymer battery feasibility.
Prominent in the historical narrative, Dr. John Goodenoughinvented lithium cobalt oxide cathode materials while atOxford University. His technology was used in the first com-mercial Li-ion battery, launched by SONY in 1991. Morerecently, at the University of Texas, Austin, Dr. Goodenoughpatented a new class of iron phosphate materials with poten-tial to replace the more costly cobalt materials. In 2000, he 2. "Hooked on lithium," Economist Science Technology Quarterly, June 20, 2002.
ATP Working Paper
received the prestigious Japan Prize for his discoveries of thematerials critical to the development of lightweight recharge-able batteries.
Other U.S. scientists working in this area abound. The workof Dr. Philip Ross at Lawrence Berkeley Laboratories usingab initio calculations gives great insight in identifying elec-trolyte components and additives to improve Li-ion per-formance. Dr. Stan Ovshinsky's team at Energy ConversionDevices has provided many of the concepts driving Ni-MHbattery technology.
There are many other examples of work by U.S. researchers that directly affected advanced battery systems. However, the United States has no large volume manufacturers, with only a of Li-ion
few firms producing small volumes for specialty and military applications. U.S. companies, although global leaders in pri-mary battery production and technology, were unable to takeadvantage of this early technological success. Their SoutheastAsian counterparts have captured a dominant position in Li-ion battery manufacturing. Huge investments have been madein Japan, Taiwan, Korea, China, and other countries inSoutheast Asia by both companies and government friendlypolicies for investment in competitive efforts to capture glob-al market share for rechargeable batteries for telecommunica-tions, wireless, and computer products.
The two major U.S. battery manufacturers, Duracell andEveready (now Energizer Holdings), began R&D efforts in Li-ion technologies around 1992, with the intent of ultimatelymanufacturing Li-ion batteries.
According to several senior staff interviewees, Duracell andEnergizer both initiated programs for production of Li-ion bat-teries. In 1997, Energizer built a manufacturing facility inGainesville, Florida outfitted with state-of-the-art equipment to Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

produce Li-ion batteries, with production slated to start in1999-2000. They licensed a Goodenough patent from Sony andbuilt on their own advantaged IP positions in several areas.
They had several years of experience with manufacturingNickel Cadmium (Ni-Cd) and Ni-MH cells in Gainesville forseveral cellular phone and notebook computer companies.
They prepared to establish a sales and marketing group in Japanto have access to the market, knowing it would take 5 years tobe accepted. When the Gainesville Li-ion plant was in the"prove-in" stage, nearly ready for production, the world marketprice for Li-ion cells abruptly declined. The companyreassessed the profitability of their investment and found it wasmarginal at the low cell prices. They could buy cells from Japanat a lower price than their manufacturing costs. The decision toexit Li-ion manufacture followed swiftly. The news of the lowreturn to manufacture of Li-ion cells spread to Duracell, andthey stopped their project. (Energizer sold its Gainesville facil-ity to Moltech Corporation in 1999 after it sat idle for twoyears. In 2002, Moltech sold the plant to U.S. LithiumEnergetics, which is seeking capital to enter production.) Small U.S. companies and start-ups have continued to pursueinnovative R&D with early-stage R&D funding from DefenseAdvanced Research Projects Agency (DARPA), the AdvancedTechnology Program, the Small Business Innovation Researchprogram, and other federal programs. Novel Li-ionchemistries have helped carry them forward toward commer-cial targets. These new ventures have been most successful in niche markets (military and medical applications). Newventures have had little success in the development of signif-icant, sizable new markets for their products. Withouteconomies of scale, their costs of production remain high.
Venture capital-funded companies tend to look off-shore fortheir production to mitigate the high cost of automated pro-duction equipment. Some U.S. companies with larger-scaleapplications have also moved offshore.
ATP Working Paper
Several ATP-funded companies illustrate a spectrum of suc-cesses and failures. While large battery companies have beenreluctant to enter medical markets due to liability concerns,Quallion and its joint venture partner Valtronic are develop-ing Li-ion technology to power implantable medical devices.
The company is on a steep growth path.
U.S.-made Li-ion battery powers tiny implants that aid
Early batteries for medical microelectronic deviceswere large, had short lives, and were not rechargeable.
As a result, only a few implantable devices, such ascardiac pacemakers, have come into patient use. Withassistance from its Advanced Technology Programaward in November 2000, Quallion and joint venturepartner Valtronic are developing a Li-ion technologyfor a battery to power implantable medical devices.
The goal is to be able to recharge the battery from out-side the body with no physical connections.
Alfred Mann, chairman and co-founder of AdvancedBionics Corporation, started Quallion LLC after beingunable to find a company to make tiny Li-ion batteriesto power the injectable neuromuscular stimulator hewas developing in the late 1990s. With a size no big-ger than a grain of rice, the tiny Li-ion battery had tohave a 10 year life, be rechargeable thousands of timesover, be hermetically sealed for safety reasons, andhave the capability to remain dormant for long periodsof time without losing its power.
The success of the Quallion battery is due to anadvanced Li-ion chemistry that provides a useful life-time significantly greater than lithium batteries that Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

are commercially available. The ever smaller implanta-bles will need ever smaller batteries to power them.
Potential solutions are coming from the research labsand startups like Quallion, and not the large batterycompanies. The large companies have been reluctantto enter this market because of the technical risks indeveloping an implantable that will function properlyin the body and the legal ramifications following a life-threatening battery failure.
Potential uses include treatment of chronic pain,epilepsy, sleep apnea, and restoration of limb controlfor stroke victims. Feasibility trials are currently underway on patients suffering from urinary tract inconti-nence. The cost of the battery by itself is initially run-ning around $400, according to Quallion's presidentWerner Hafelfinger. It is recharged from outside thebody through a special pad attached to a belt or placedon a seat or bed.
Starting with only 2 scientists in 1998, the Sylmar,California, company more than doubled in size every 6months, and today Quallion employs over 100 people.
Sources: Argonne News Release, "Battery powers tiny implants that aidneurological disorders (September 19, 2003) on Argonne NationalLaboratories website www.anl.gov/OPA/news03/news030919.htm; andSmall times, "When lives are at stake, the batteries better work" (June 26,2003) on their website <www.smalltimes.com>.
PolyStor, a spin-out of the Lawrence Livermore NationalLaboratory, developed state-of-the-art Li-ion technology, butthe company failed following unsuccessful efforts to marketits product for cell phone applications in the face of severeprice competition between Japanese and Chinese batterycompanies seeking market share.
ATP Working Paper
Small U.S. company takes foot steps in Li-ion battery
Polystor Corporation, a privately held company basedin Livermore, California, developed and manufacturedrechargeable Li-ion and Li-ion polymer batteries insmall volumes for mobile devices and portable elec-tronic products. Polystor developed a nickel cobaltoxide cathode that delivered the highest capacity andenergy density in the industry at one point.
The firm was founded in 1993 to bring to the markettechnology that was developed by its founders while atthe Lawrence Livermore National Laboratory. The firmpursued development of Li-ion technologies for theStrategic Defense Initiative program. In the 1990s,with assistance in R&D funding from a TRP grant, sev-eral SBIR grants, and a grant from the U.S. AdvancedBattery Consortium, the company sought to spin thetechnology out for commercial use.
PolyStor's Li-ion cell was tested by Motorola and othermajor manufacturers and reached production by 1996.
PolyStor made the cell components in the U.S. andshipped them to Korea for assembly.
In 2000, PolyStor won an award from the AdvancedTechnology Program to help develop a safe, ultrahighcapacity next-generation rechargeable battery basedon Li-ion polymer gel technology.
After suffering a sharp decline in demand for its prod-ucts in 2001, tied to a global decline in the demand forcell phones, PolyStor ceased operations in 2002.
Source: Steve Peng. "Mold to Fit Battery." Edgereview at <www.
edgereview.com>.
Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

PolyPlus, with joint venture partners Eveready (now EnergizerHoldings) and Sheldahl, received ATP funding to develop lithi-um-sulfur battery technology spun out of Lawrence LivermoreNational Laboratory. The partnership among small and largecompanies failed to see the anticipated commercialization path-ways when the project encountered technical difficulties andEnergizer exited the market for rechargeable batteries.
Small U.S. company continues to obtain financial
assistance for lithium-sulfur rechargeable battery R&D
With its ATP award in 1999, PolyPlus BatteryCompany (Berkeley, CA), in a JV with joint-venturepartners Sheldahl, Inc. (Northfield, MN) and EvereadyBattery Company, Inc. (now Energizer Holdings,Westlake, OH), aimed to develop and test recharge-able, long-life lithium-sulfur batteries that offeredincreased energy density, reduced size and manufac-turing cost, and enhanced safety as power sources formobile technologies such as notebook computers andcell phones.
PolyPlus was to develop processes for depositing thelayer of glass and specifying the battery chemistry.
Sheldahl's role was to develop the protected lithiummetal electrode (with assistance from subcontractorSidrabe), and Eveready was to develop the glass elec-trolyte and cathode and construct test batteries.
Eveready Battery Company, Inc., incorporated in 1986by Ralston Purina Company to acquire the long estab-lished battery products business of Union CarbideCorporation, became a leading manufacturer of pri-mary batteries and battery-powered flashlights. In2000, Ralston-Purina spun off Eveready as EnergizerHoldings, Inc., an independent company, and sold ATP Working Paper
Eveready's OEM rechargeable battery business toMoltech Corporation for manufacture and assembly ofbattery packs for a variety of battery-powered devicesand tools.
The ATP–funded project encountered technical diffi-culties in the second and third years of the project,particularly in protected anode development. By theend of the ATP project, Eveready/Energizer announcedit did not plan to pursue the technology. By 2000,Eveready/Energizer had essentially exited the marketsegment where lithium-sulfur technology would bestfit. Energizer currently estimates it has a 30 percentshare of the U.S. alkaline battery market. It has notannounced any revolutionary changes in its batterytechnology.
PolyPlus continues to pursue leading-edge lithiumbattery research and development and to conduct theindependent research upon which the company wasfounded, both on contract research and in joint devel-opment projects with battery manufacturers and oth-ers, with financial support from individual angelinvestors, venture capital, and large companiesEnergizer and Samsung.
In 2002, Moltech Corporation sold the Li-ion facilityacquired from Energizer to U.S. Lithium EnergeticsLLC. Moltech continues as a small but fully integratedprovider of rechargeable battery solutions for manyapplications. Now called Sion Power, the company isconcentrating on developing and commercializing itsown thin-film, lithium-sulfur rechargeable batterytechnology.
Source: ATP Project Brief, project number 99-01-6015; Abstract 53, IMB12 Meeting, Electrochemical Society; Hoover's Online.
Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

PowerStor, a subsidiary of PolyStor, received ATP funding todevelop aerogel capacitor technology licensed from LawrenceLivermore National Laboratory. More successful than its par-ent company, PowerStor illustrates the movement toward offshore production for larger-scale applications.
Offshore manufacturing enables small company to
manufacture without capital investment in production
PowerStor, a subsidiary of PolyStor, licensed aerogelcapacitor technology from Lawrence LivermoreNational Laboratory. PowerStor overcame financial bar-riers to constructing production facilities by manufac-turing its aerogel ultracapacitor products by hand inMalaysia. This approach required minimal capital andquickly resulted in product sales. More than 10 millionof these devices have been sold in Asia, Europe, and theUnited States, with new applications emerging monthly.
Microsoft uses the capacitor to power the clock in itsnew gaming console system. Several aviation equipmentmanufacturers install the device in aircraft displays tomaintain continuous voltage when switching from oneelectrical bus to another. Other applications includelow-tech toys, valve actuators, and insulin pumps.
Cooper Electronic Technologies acquired PowerStorwhen the parent company, PolyStor, folded.
Source: Missile Defense Agency 2003 Technology Applications Report:Electrical, Electronic, and Magnetic Devices.
Other examples abound.
Valence Technology is a U.S.-owned, Austin, TX-basedproducer of Li-ion polymer batteries. Following R&D inthe United States, Valence set up battery manufacturing ATP Working Paper
operations in Northern Ireland because of financial incen-tives by Invest Northern Ireland. Its production is small inscale compared to Sanyo or Sony. It has mounted anextensive campaign to sell its lithium vanadium phos-phate cathode batteries for notebook and cellular phones.
The Valence battery is available through their web site anddistributors, but sales have been disappointing. After twoyears in the market, sales were less than $5 million peryear. Valence announced in 2003 that the company wouldmove its production from Northern Ireland to China totake advantage of lower production costs there than inNorthern Ireland.
Ultralife and Eagle Picher Industries were joint-venture recip-ients of ATP funding to develop polymer Li-ion batteries forportable electronics devices used in commercial space appli-cations. Eagle-Picher has developed Li-ion production capa-bility in Canada targeting the U.S. military market, as didYardney. Ultralife is now largely concentrating on the nichemarkets in smoke detectors and military radio applicationsusing its lithium manganese primary cell platform.
With a twist in this off-shore strategy, Long Island-basedBrentronics buys cells from Japan and China for use inmilitary packs. After assembly into battery-packs in theUnited States, they are marked "Made in USA." This study seeks to identify and analyze the reasons for thespecific decisions by the two largest U.S. battery companies tocancel plans for Li-ion production. At the same time, thestudy establishes the business environment facing smallercompanies and examines key factors affecting their success orfailure.
III. The Innovation Process
for Battery Technologies
Understanding the production decision requires first under-standing the innovation process. The introduction of a newbattery technology is a complex, expensive, and time-con-suming process. As with all technology developments, it startswith an idea that has potential for a significant businessopportunity. This might be an improvement on a presentproduct, such as a new material, or a more efficient manufac-turing process. It could be an entirely new product or materi-al, which is less expensive or higher in performance thanexisting products. It could also be a new process with poten-tial to lower product costs and increase sales.
Figure 1 depicts the five stages in the product innovationprocess: 1) concept generation and validation, 2) research, 3) applied research, 4) development, and 5) advanced devel-opment or pilot plant operations. This process holds for anytechnology development effort, not just for batteries. This figure provides a brief description of each category and thetype of activity that occurs during that phase. Figure 1 alsoincludes an estimate of the timing, staffing requirements,materials usage, and the relative cost of each stage. For exam-ple, the cost of the Advanced Development stage in approxi-mately 50 times the cost of the Concept Validation stage.
It is difficult to assign an absolute time span for each segment.
Some concepts are abandoned when they fail to yield theirinitial promise, while some can be accelerated when experi-mental results confirm such promise. One constant is that ATP Working Paper
Figure 1. Schematic of the Overall Battery R&D Process from Conception to Production
Concept Validation Research
Establish initial concept, chem.
temperature, etc.
structure, etc.
repeatability of characterize 5 to Is there a market? line-factory trials Market development Timing One to three years
One to three years Three to four years Three to five years Two to four years Staffing One
Materials Batch Grams
Rel. Cost Index
each new concept has its own unique time to fruition.
Concepts that show promise and yield early confirmation maybe accelerated in order to reduce time to market. The chartreflects that, for the battery industry historically, the maxi-mum time from conception to advanced development andactual product introduction totals 19 years. This correspondsclosely to the actual time line for introduction of the alkalinecell, which is today's standard for performance of primarycells. The alkaline cell discovery occurred after the end ofWorld War II, in the late 1940s. It was based on substitutingmanganese dioxide for mercury oxide in the Ruben cell. An Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

initial product introduction by Rayovac failed in the mid1950s. Eveready and Duracell introduced the product as weknow it today between 1968 and 1970.
The chart also suggests that the process can be completed inas quickly as 10 years, as happened with the Li-ion technolo-gy. Work started in Japan in the early 1980s at Asahi ChemicalCompany, with the substitution of a carbon intercalationanode (based on the results of Basu, Besenhard, and Yazami)for the lithium metal anode coupled with lithium cobalt oxidefor vanadium oxide (based on the Goodenough results forlithium intercalation into transition metal oxides). Sonyannounced the product in 1991 and made commercial cellsavailable in late 1992. Thus, the Japanese companies movedextremely rapidly through the development and commercial-ization processes for Li-ion cells, as they have for many elec-tronics innovations in the past decade. The U.S. companiesanticipated the longer time frame. However, the new technol-ogy was quickly adopted for cellular telephones and notebookcomputers because of its smaller volume and significantlylighter weight than Ni-Cd and Ni-MH.
New product introduction in the battery business is a riskyactivity. Line extensions and new sizes in a product line gen-erally take one to two years. The processes are slow and quiteexpensive. An estimate of the total cost of developing a newbattery technology, from concept to production, is about $100million. This includes a small pilot operation, but does notinclude the cost of the production facility.
The ability to fabricate prototype cells that closely approxi-mate those that will be used during product introduction isessential throughout the R&D process. It takes considerabletime and testing to determine the nature of the interactionbetween the various components of the cell. The stability of agiven design might not be fully understood until years afterits introduction.
ATP Working Paper
Essential to commercial success is early input from the marketing group to determine features of the initial productline, such as the main application(s), size, rate of discharge,and ampere-hour capacity. Technology and marketing groupsgenerally make the decisions to pursue new technologies.
Companies conduct regular reviews of their technical pro-grams with sales and marketing groups at least once a year andsometimes quarterly. The production operations get involvedduring the advanced development stage of product introduc-tion in order to assist in the transition to market introduction.
Although many R&D projects are undertaken, few are select-ed for commercialization. The commercialization decisionoccurs when a project transitions to applied research. GeorgeHeilmeier, Chairman Emeritus, Telcordia (formerly Bellcore)provided us with the paradigm in Table 1.
This catechism is a succinct but generally representative viewof how one might rate the value of a technology project andits chances of success. Several vice presidents of sales andtechnology said that an R&D project must have definitepotential to contribute significant sales and profits to be car-ried forward.
Table 1. "Catechism" for Screening "Winners"
1. What are you trying to do? (No jargon, please.) 2. How is it done today? What are the limitations of current practice? 3. What is new in your approach, and why do you think it can succeed? 4. Assuming success, what difference does it make to us and to our customers? 5. What are the risks and what can we do about them? 6. How long will it take? How much will it cost? When are the mid-term and final exams? Source: George Heilmeier, Chairman Emeritus, Telcordia.
IV. Structural Factors Affecting
Our interviews revealed strongly contrasting business envi-ronments in the United States compared with Asian countrieswith burgeoning activity in rechargeable batteries. The differ-ent market structures and other characteristics underlyingthese varied environments favor manufacturing of recharge-able batteries in these Asian countries, typified by Japan,which manufactures 80% of Li-ion batteries today.
Table 2 summarizes some differences in the business environ-ments in the United States and Japan that emerged duringinterview discussions. In general, Japanese firms haveenjoyed more supportive government policies and financialconditions. Although Japan has lately been suffering its owneconomic malaise, it is a misperception that the advantagesthat Japan enjoyed though the 1980s have disappeared. Andother East Asian companies seem to be following Japan'sexample.
This section explores the different structural factors in thecontrasting national business environments in greater detailin order to seek answers to why U.S. firms failed to success-fully engage in Li-ion battery manufacturing despite theirdominance in primary batteries.
ATP Working Paper
Table 2. Characteristics of Business Environment in the U.S. and Japan
Goal is immediate profits and maximum personal income Goal is to gain market share Short-term or quarterly outlook Long-term outlook, 5 yrs Only immediate high return Low return acceptable Little company loyalty or loyalty to suppliers Strong company loyalty and loyalty to suppliers Little co-operation with university research Close co-operation with university research Little government funding of company R&D programs Government funds strategic R&D programs Low savings rate/high interest rates High savings rate/low interest rates The United States has a fully developed infrastructure for manufacturing. The value added by manufacturing has been a true source of strength behind the U.S. economy. A major component of this strength is the ready availability of highlyqualified industrial designers and manufacturers of automat-ed production equipment. In general, the production by U.S.
equipment designers and manufacturers is less expensivethan their Japanese counterparts, and their equipment isequally good or better.
The U.S. battery companies have been successful in primarybattery markets. Three of the world's five largest producers ofprimary cells are based in the United States. Most of theirbusiness is dedicated to supplying batteries to power simpleportable electric devices. All have production facilitiesthroughout the world with global marketing and distributionnetworks that deliver products directly to consumers throughretail outlets. Success in the primary market has been depend-ent on establishing highly automated production facilities, aswell as economies of scale, and marketing the unit cellsdirectly to consumers using branding, advertising, and strongcontrol of the distribution network. These are not key issuesin the rechargeable market.
Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

Success in the rechargeable market requires knowledge of the electrical requirements for emerging products that use batteries as well as the ability to generate rapid productimprovements to meet the demand and then to assemble theunit cells into battery packs for use in the device. Most U.S.
producers have lacked this marketing and design/productioninfrastructure.
Large Japanese vertically integrated, consumer electronicscompanies have this infrastructure in place. These companiesare major players in both primary and rechargeable batteryindustries. European companies have manufacturing capabil-ities for primary and some rechargeable batteries, but are notglobally oriented on the scale of U.S. or Japanese batteryindustries.
Duracell originally envisioned forcing the Li-ion cell intotheir business model for alkaline cells. They proposed andimplemented a series of standard size packs for the industryto choose from, based on a minimum of different standardsizes, or stock keeping units (SKU), and sold through theirregular distribution channels for notebook computers. Theapproach failed because the notebook and cellular telephonedesigners each had a unique layout, and considered it a criti-cal product differentiator. Furthermore, computer manufac-turers have a strong incentive to sell their own packs at thetime of initial purchase because the packs are very profitablefor them.
The past half century has seen a significant hollowing of tra-ditional U.S. industry. In the global economy, engineering,design, and distribution can be located in the United Stateswhile manufacturing is conducted in Southeast Asia.
However, once the production process is out of a company'simmediate control, it often loses control of the intellectualproperty on which the manufacturing and product technolo-gy is based. New technology is now being developed in thecountries to which the production had been shifted.
ATP Working Paper
Duracell, Energizer, and Rayovac have acquired manufactur-ing facilities or formed joint ventures in China for alkalinecells. Eventually, using their strong worldwide distributionnetworks for primary batteries, they could well take advan-tage of the lower production costs in China and shift produc-tion of primary batteries there. These distribution networksare entirely different from those needed for the rechargeablebattery business, which is one of the reasons Eveready andDuracell exited the rechargeable battery business. They allbuy rechargeable Ni-MH cells from China and Japan for resaleusing their distribution networks.
Japanese companies are geographically closer to other Asian Supply Chain
markets for selling their products, sourcing production, and working with other makers of portable devices. The Japanesebattery supplier is most often part of a vertically integratedJapanese electronics company. Proximity to the device design-er gives them a significant advantage in developing new prod-ucts for the market. In the United States, major battery pro-ducers are "on the outside looking in," with limited access toor understanding of the needs of portable electronic devicemanufacturers. Device manufacturers such as Motorola andHP do not share new product concepts and developmentswith U.S. battery manufacturers.
It is even more difficult for U.S. manufacturers to identify newbattery requirements for devices that are being developed inJapan, the heartland of portable device developments. TheJapanese market is not readily accessible to non-Japanese com-panies, making it very difficult for U.S. battery manufacturersto act as suppliers of the batteries for new products developedin Japan. As a result, the U.S. battery manufacturers wereunable to take advantage of the introduction of the Li-ion bat-tery to the portable device market in 1991.
Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

We examined some of the structural differences underlyingthese different market relationships in the United States andJapan in greater detail.
The relationship of battery suppliers/manufacturers to theOEM manufacturers of portable electronic devices followstwo patterns. In the vertically-integrated Japanese electron-ic companies, device designers and battery groups are equalpartners in developing leading edge new products. Theintensity of market competition in Japan has resulted in therecognition by both groups that having batteries of the high-est capacity is critical to device sales. Designers of batterycomponents have advanced notice of the needs of the devicedesigners. They thus have time to develop a battery withspecial characteristics or offer an improved version of theirpresent battery for incorporation into the device.
This coordination between device designer and battery man-ufacturer does not exist in the United States. Since new devicedesigns constitute very sensitive business information, thedevice designer will not share detailed information on the bat-tery needs with outside battery suppliers until the device isalmost ready for production. Once new device designs arecomplete, OEMs specify battery requirements. They then usetheir specification to purchase from suppliers worldwide,based on price.
The relationship of U.S. battery manufacturers to devicedesigners, including U.S. cellular phone, notebook computer,and other wireless manufacturers, is distant. The devicedesigner imposes new product requirements. The device man-ufacturers develop relatively detailed battery performancespecifications and buy against their specifications on price.
They also want at least two suppliers of each component tohave an assured supply to meet their needs. The battery manufacturers have relatively little advance warning when anew cell size is required for a new device. U.S. and European ATP Working Paper
device manufacturers would buy a battery product from U.S.
suppliers if it were available and the cost and performancewere competitive.
All interviewees from U.S. battery manufacturers felt stronglythat device designers place the battery last in their designs.
The cavity provided for the battery is often an afterthoughtand undersized for the expected performance. It often doesnot fit particular battery sizes and shapes that are currentlybeing manufactured.
The device manufacturers qualify battery suppliers and willconduct regular quality audits of the supplier's plants toensure compliance with specifications. This contrastsmarkedly with the situation in Japan, where battery anddevice designers in the same or sister company work in par-allel to arrive at new sizes or shapes much more efficiently.
The Japanese materials suppliers often have agreements withtheir customers down the supply chain to include some R&Dactivity to improve their products. In Japan, materials suppli-ers truly cooperate with battery manufacturers, whereas bat-tery manufacturers in the United States typically have no con-tinuing relationship with their materials suppliers. U.S. man-ufacturers often insist on having two suppliers for criticalmaterials for their manufacturing operations.
A global market exists for battery materials. The same materi-al can be purchased from several companies at the same pricein the United States, China, or Japan. All of the major materialproducers for Li-ion batteries, however, are located in Japan.
Although several U.S. companies are capable of producing allthe components and materials, no viable market exists in theUnited States because there is little manufacturing here. TwoU.S. materials producers have established a presence in Japanto supply the Japanese Li-ion battery manufacturing. Becauseof cultural barriers, these suppliers spent five or more years Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

establishing a presence in Japan before the Japanese batterymanufacturers would consider them as reliable suppliers.
As a result, U.S. battery manufacturers have no loyalty to U.S.
suppliers for materials produced locally and will buy materialsglobally from the lowest-cost producers. One materials suppli-er emphasized that large U.S. battery manufacturers universal-ly disallow the materials supplier sufficient profit to invest inprocess improvements, or, more importantly, to develop newmaterials for a next generation product. As a result, materialsproducers are reluctant to invest in additional R&D to devel-op a new technology. They will pursue engineering improve-ments only to meet performance requirements. These differ-ences in supply-chain relationships in the United States andJapan place U.S. OEMs at a considerable disadvantage inaddressing markets using rechargeable batteries.
U.S. companies often have a very short-term outlook that R&D Planning
results from the common practice of linking management Horizon and
compensation to the company's stock share price. There is a Return on
strong corporate drive to have immediate profits match for- ward stock analyst projections, and bonus systems often rein-force this tendency. The stock market responds directly to theprofitability of the company on a quarterly basis. When a per-formance bonus is included in the management compensa-tion package, fluctuations in stock price can directly impactremuneration for executives. Managers in the United Statesreceive bonuses that often are equal to or larger than theirbase salaries. Since R&D expenses negatively impact the netearnings for each quarter, managers may tend to sacrificeR&D in order to maximize their immediate income and com-pany earnings, and may be reluctant to invest in new facilitiesthat have a longer-term payback than one or two years. Thefinancial impact of the introduction of new products is not ATP Working Paper
felt in company profits until three to five years in the future,which is often beyond the horizon of personal benefit for theU.S. manager.
In contrast, Japanese managers generally take a long-termoutlook, and their goal is to gain market share. They aim toensure that the company will be in good condition whenthey hand it off to the next generation of managers; thus,their outlook is five years or more. This gives them theopportunity to invest significantly in future R&D for prod-uct improvements. Japanese companies report earnings on ayearly rather than a quarterly basis. This means that a com-pany has two years to recover from a down period, and thatthe managers are not pressed for immediate profits. When amarket matures, the companies with the largest marketshare profit, second-class players survive, and third-placeplayers disappear. The availability of bank loans at low inter-est rates in Japan reduces the pressure on managers to focuson profits and stock price.
The large, well-funded battery manufacturers in the UnitedStates have discontinued in-house funding of forward-look-ing research and development. They now tend to fund onlyR&D that is related to performance improvements in theircurrent products. If needed, they believe that new technolo-gy can be acquired from other companies, particularly fromventure-backed companies, which generally lack the abilityto generate sufficient capital funding for production capabil-ity. The battery manufacturer often has a powerful engineer-ing group with expertise in the design and operation of auto-mated production. Most venture operations lack this criticalexpertise. New technology the battery company acquiresmust have the potential to produce immediate impact on thebottom line, with a recovery of investment in two years orless, and ideally the new technology can be adapted to pres-ent production equipment.
Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

In existing companies, new technology that departs from thecurrent product line must present a truly significant businessopportunity to justify funding of new facilities. An intervie-wee with a materials company said that the company wouldinvest in new equipment for producing a new product only ifone of its customers would commit to a purchase order for agiven amount of the new material (basically guaranteeing aportion of the initial investment). Generally, a similar processis involved if a device manufacturer wants a specialized cellfor its device. The battery manufacturer will want a guaranteefrom the customer to purchase a minimum amount of the spe-cially-designed product.
Since Japanese battery manufacturers are invariably part of Project and
large, vertically integrated electronics corporations, their device designers and battery developers readily share new product information. Early in the product development cycle,the battery group has inside information on the new require-ments, sizes, and performance specifications. Conversely, thedevice designer is aware of attainable capabilities for batteryperformance. Each has time to respond to the evolving needsof the other. Where executive bonuses are not strictly tied tothe price of stock, management compensation is not threat-ened by the vagaries of the stock market. This results ingreater security for R&D programs. Japanese companiesrarely suffer staff reductions, and the managers are relativelyfree to engage in long-term planning.
The distribution channels that Duracell and Eveready have established for battery sales, which are based on selling indi- vidual cell units to the consumer, are not applicable to Li-ionbatteries. Because of safety and performance considerations,Li-ion manufacturers (except those in China) do not sell indi-vidual cells. Japanese cell manufacturers sell only batterypacks with safety devices included. A battery pack can consist ATP Working Paper
of a single cell, or multiple cells connected in series or in par-allel, to give the required voltage and capacity. Individual cellsfrom major Japanese manufacturers are available only to out-side pack assemblers on approval of their electronic controlcircuitry in the pack. Individual cells are available fromChinese manufacturers, but are often of inferior quality. Theyoften lack the usual safety features in cell design and elec-tronic controls and thus constitute some danger to the public.
This is not true for responsible manufacturers who try tomatch the world standard of performance.
The replacement market for Li-ion cells is minimal. Of thepurchasers of a new piece of equipment such as a cell phoneor a notebook computer, about 30 percent will buy a secondbattery pack from the OEM. After that, replacement salesaccount for less than 2 percent of total battery sales. Peopletypically buy a new, higher performance notebook computerabout the time that their old battery would need replacement.
Lower cost, knock-off replacement packs are available frommany Internet suppliers, such as IGO, at about 50 percent ofthe cost of the original pack. The knockoff packs may nothave the same safety circuitry as the original packs, and couldbe dangerous in actual operation. Nonetheless, many peoplebuy these knockoff replacements.
Materials and components for the manufacture of Li-ion bat- teries are readily available any place in the world for essen-tially the same price. In addition, Li-ion cells have a highvalue and are lightweight and small. The cost of shippingcells to pack manufacturers, wherever they are located, andthen to the device assembler for incorporation into the finalproduct, is not a determining factor in locating a manufac-turing facility. In the global economy, the location of manu-facturing operations is determined by considerations otherthan logistics.
Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

Most Li-ion battery pack assembly, however, is located inSoutheast Asia, because of the low cost of labor for manualoperations. It is advantageous for the battery manufacturer tobe close to the pack manufacturer when introducing newtechnology, or when a safety incident occurs. In these situa-tions, the pack manufacturer needs a quick response from thebattery manufacturer to identify and remedy the cause of theincident.
Venture capitalists, consistent with the payoff requirements of OEM's, have likewise not found the time frame for develop-ment of rechargeable batteries acceptable. Success in com-mercializing battery technology at companies funded by ven-ture capital has been spotty at best. The inability to generatesufficient income from product sales in an acceptable timeframe has led to some failures. Venture-funded ValenceTechnology raised substantial funding through stock offeringsand had a clear path to commercialize its technology, but sales have been disappointing. Venture-funded BolderTechnologies and PolyStor fell short of full commercializationof their technologies because of insufficient funding for production facilities. The companies were not able to trans-late good technology into practice within a time frame accept-able to venture capitalists.
One exception is PowerStor, a spin-off from PolyStor, whichdeveloped ultracapacitor technology under an ATP award,and then managed to have the manufacture of its productsaccomplished by hand in Malaysia. This choice required min-imal capital and quickly resulted in product sales. The com-pany eventually was acquired by California-based CooperElectronics, a maker of audio equipment.
Many venture groups tend to follow the behavior reported inthese examples. They will fund technology development to the ATP Working Paper
point of proving its validity and defining the market. They arereluctant to fund costly manufacturing facilities or coverlengthy scale-up/"prove-in" procedures. The companies mustraise funds for manufacturing equipment by stock offerings,license or sell themselves to an existing company, or go overseasto manufacture with a minimum expenditure.
Often U.S. employees have little feeling of company loyalty, and the company feels little, or no, responsibility for the future welfare of its employees. This contrasts with the tradi-tional paternalistic company in Japan, which has engenderedstrong company loyalty with its system of lifetime employ-ment. Although this lifetime employment system has neverbeen universal in Japan, and has eroded in recent years, it isstill prevalent for those who graduated from the best univer-sities and who are now employed by the most prestigious bat-tery companies.
Although labor costs do not appear to play a significant factor Labor Costs
for a highly automated Li-ion battery factory, they do play asignificant role in the decision about where to place batterypack assembly. Where U.S. firms employ offshore activity forassembly, it helps build technical capabilities of Asian engi-neers and scientists, resulting in stronger capabilities by Asianfirms, and increased offshore activity by U.S. firms in thelonger term.
Several interviewees who were involved in developing Li-iontechnology pointed out that the costs for skilled labor in awell-automated Li-ion factory (producing three million ormore cells per month) are essentially the same in the UnitedStates and Japan. Production in this type of factory involves aminimum of hand operations, and skilled operators arerequired to ensure proper operation of the equipment. In suchan automated factory, the material costs are 75 percent to 80 Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

percent of total manufacturing costs (or higher). The volumeof materials required to operate a plant of this capacity moti-vates producers to obtain the lowest price for a given material.
Labor costs are significant for battery pack assembly, as aconsiderable number of hand operations are involved inassembly operations. Small volume production items areespecially sensitive to labor costs. As the president of U.S.
operations for a Japanese battery company noted, most bat-tery companies have moved pack assembly operations fromMexico to exploit the lower labor costs in China andSoutheast Asia. Low volume niche markets can be serviced inthe United States, provided that the higher costs for unskilledlabor can be recovered.
This movement (product lifecycle) of manufacturing opera-tions offshore has an additional effect. As local engineers andmanagers become skilled in working with the technology,they develop the capability to undertake process improve-ments themselves. This scenario has occurred in several semi-conductor fabrication operations that moved to Taiwan 15years ago. The local group now generates all the processimprovements, independent of the U.S. parent company. Thissame outcome can be expected for battery operations thatmove to the East Asian countries. Although the basic tech-nology still resides in the United States, with the relocation ofmanufacturing to Southeast Asia, the local operators andmanagers will learn the technology and eventually acquire theskills to improve it without aid from their U.S. counterparts.
A significant increase in the publication of battery-relatedtechnical papers from China and Korea has occurred over thepast five years. Today, these contributions are of high qualityand demonstrate a grasp of the fundamentals that previouslywere found only in papers by researchers from Europe and theUnited States. Many of these scientists were trained at U.S.
universities and then returned to academic and industrialpositions in their home countries.
ATP Working Paper
This increase in technical capability is due to the strong gov-ernment support in China and Korea, both for developingbattery production facilities and for university research.
China recently announced a program related to the 2008Olympics involving production of electric vehicles poweredby fuel cells and batteries. Production facilities for these vehi-cles will be located primarily in China and Korea. Thesecountries offer large financial incentives in order to acquiretechnology expertise and establish domestic manufacturingfacilities that provide jobs. Key technologies include powersources for portable electronic devices. The incentives usual-ly involve a government loan or grant to a local company forthe production facility, with an American or Japanese compa-ny providing the technology through a joint venture. As aresult, the technology becomes resident in the host country.
Historically, the company providing the technology is eventu-ally forced out of the venture. There are incentives for the U.S.
and Japanese companies, however, to try and obtain marketshare in China by having a presence there.
Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

Manufacturing facilities for Li-ion batteries are expensive.
Capital Costs of
The rule of thumb developed for the cost of automated Li-ion facilities is that a volume manufacturing facility of three mil-lion cells per month has an annualized cost of $3 to $4 percell. A plant making three million cells per month will thuscost between $108 and $144 million. This number includesthe cost of the land, but not the costs for the research, devel-opment, and engineering (RD&E) that produced the technol-ogy and equipment designs for the plant. Plant costs are aboutthe same worldwide.
The high cost partly results from requirements for high preci-sion and environmental controls. In the United States, thepermit process for new operations is slow and expensive.
Contributing factors include the amount of paperwork com-panies must file to comply with EPA rules and regulations, aswell as potential local political opposition to the location ofnew manufacturing facilities.
New facilities to produce the active materials for carbonanodes or oxide cathodes are less expensive to build than arethose for cell manufacturing. Building new facilities for vol-ume production of these materials will cost about $10 perpound for a facility designed to produce 1,000 tons of productper year. The cost of building new facilities is about the samefor both carbon anode materials and cobalt oxide cathodematerials. The cost of modifying and expanding an existingfacility is slightly less, but still lies in the range of $1 per poundannualized. Materials companies traditionally operate onlower rates of return than do the battery companies. Materialsuppliers invariably prefer to modify existing facilities to pro-duce a new product rather than build a new facility. Materialscompanies will not undertake the building of a new produc-tion facility without having agreements in place from cus-tomers guaranteeing to buy a specific amount of material.
ATP Working Paper
In their return on investment calculations, U.S. managersmust load their overhead from corporate staff as well as recov-ery of the investment in a 3 to 5 year frame. At the time theEnergizer group made its decision to cancel its Gainesville Li-ion plant, the calculations showed that the returns from thenew plant would be much lower than for alkaline cells.
Further, based on the required calculations, Energizer couldbuy the cells cheaper than they could make them.
Ten to fifteen years ago, the large battery companies pursued R&D Costs
significant R&D efforts. Today, these same companies engagein little or no basic research and have practically eliminatedforward-thinking product R&D. Internal funding of R&D ismost often directed toward improvements in present prod-ucts, and research work now consists entirely of applieddevelopment, with little emphasis on basic research. If need-ed, these companies expect to buy new research concepts andtechnology developed elsewhere.
Advanced analytical instrumentation is essential to advance aresearch program. Instrumentation costs include both hard-ware and skilled labor. The cost of equipment for Li-ion R&Dis significant. The initial acquisition of ESCA-Auger analysisequipment costs $750,000 or more, and a good mass spec-trometer gas chromatograph costs from $250,000 to$300,000. In three or four years, personnel costs for dedicat-ed operators can equal or exceed the cost of the equipment.
Only a few well-funded battery R&D operations, such asthose at Telcordia, Duracell, and Eveready, can affordadvanced analytical equipment and the personnel to run it.
Use of university facilities is a possible solution. Most R&Dlabs are near university facilities that have a collection ofadvanced analytical equipment, such as ESCA-Auger, massspectroscopy-gas chromatography, transmission electron Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

microscopes, and surface Raman spectroscopy. Private com-panies can pay to use these facilities. Most universities requirescheduling use of facilities by outside companies, however,and researchers must travel to the university to carry out theanalysis.
In general, companies find using university facilities to beinconvenient, time-consuming, and expensive. Researchersare under time pressure to obtain results. They do not find itefficient to wait a week and travel for 30 to 60 minutes tospend a short time on the machine and obtain a single result.
They would more likely use such equipment if it were downthe hall or across the street.
Even though interest rates are at historical lows in the United States, the cost of securing money for business investmentcontinues to be lower in Japan. The low interest rates in Japanare driven, in part, by the higher savings rates. People in Japanhave been saving an average of over 20 percent of their grossincome annually. In contrast, the personal savings rate in theUnited States dropped from about 8 percent in 1990 tobecome slightly negative in 2000. The Japanese tend to savemore money than Americans for their retirement. This highpersonal savings generates large amounts of capital availablefor loans and investment in Japanese banks, resulting in lowinterest rates for commercial loans.
Low interest rates in Japan often encourage Japanese com-panies to rely more on bank loans to fund R&D and newproduction facilities. This is in direct contrast to the finan-cial resources available to U.S. companies from lendinginstitutions to build new facilities and the actual costs theywould incur.
ATP Working Paper
Intellectual property (IP) consists of patents and know-how that a company possesses. The importance of IP in the battery environment depends on the company's role in the market-place. A venture fund company must have a unique IP positionin order to generate funding for the venture. It is important tobuild a group of patents around the core technology to protectthe area of interest from outside predators. Investors believethat patent protection of the technology is the key to success.
Uniqueness in a venture operation is an essential element.
A strong IP position can protect a market. Energy ConversionDevices Corp. (ECD) has been very successful in keeping Ni-MH batteries under control of its patents. No one can importNi-MH into the United States without taking a license fromECD. This generates considerable income for the company.
Another example is the patent for lithium cobalt oxide(LiCoO2) for use in batteries. Harwell, in England, controlledthe use of LiCoO2 in Li-ion batteries until the patent expiredin 2002. All Li-ion manufacturers have taken a license on thispatent, generating significant income for Harwell.
Composition-of-matter patents can be very important as theyare easily defensible. They have played a key role in R&Drelated to Li-ion systems, and in other battery systems as well.
Intellectual property is less important for existing batterymanufacturers. Although they view IP as providing the free-dom to operate, they see manufacturing process technologyand know-how as the real keys to low cost production andsurvival in the market. To meet requirements for new prod-ucts, they believe that they can acquire or generate IP as need-ed. In the past, R&D efforts have developed considerable IPfor new products.
Energizer's plans for Li-ion production included both its ownand acquired IP, and the acquisitions were accomplished priorto their building their Gainesville plant. They licensed a coreGoodenough patent from Sony and intended to purchase Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

materials from companies that had an IP position on the par-ticular form of carbon/graphite they intended to use. Thelicense on the carbons came with the purchase of the materi-als. They had developed their own IP positions in severalareas such as sealing and venting that would make their cellconstruction safer and better than the competition.
Another difference between the United States and Japan is the difference in legal exposure companies experience in regard to various product safety incidents. The most common inci-dent involves a cell in a battery pack entering thermal run-away and venting with fire. This usually causes significantdamage to the notebook computer or other device. Accordingto the VP of sales of a materials company, this legal exposurepresents a considerable risk for makers of Li-ion batteriesspecifically, and those introducing new materials and technol-ogy in general. In the United States, such incidents are causefor class action lawsuits against the offending company.
Japanese companies in their home market deal quickly withthe individuals involved in the incident. They do not rely ontheir legal system to provide reparation. The Japaneseapproach of proactively providing reparations and demon-strating human concern reduces their legal exposure in theirhome market. In contrast, for a U.S. company to demonstrateconcern for the victim of an incident would be an admissionof guilt, potentially exposing itself to additional legal reper-cussions.
About five safety incidents involving notebook computersoccurred in 2002. Cell production was in the range of 770million units, of which roughly 40 percent (350 million) werefor installation in notebook computers. This translates into 5incidents in 308 million, or slightly more than 1 in 61 millioncells. Cell manufacturers are working hard to improve theodds. The manufacturers of cellular phones and notebookcomputers accept the current rate of incidents as a cost of ATP Working Paper
doing business. Although safety is still a concern for thecobalt cathode cells, recalls resulting from safety related inci-dents have not increased in spite of a significantly higher cellcapacity and increases in production.
Government policy can encourage or discourage plant loca- tions. The relationship between government and industry in the United States differs from that in other countries. In theUnited States, the government more frequently takes anadversarial position against industry on environmental issues.
Government and industry are more likely to turn to the courtsto resolve problems. This is in sharp contrast to the coopera-tion between government and industry in Japan and else-where where the two groups work together to solve problemsas quickly and expeditiously as possible.
The Japanese government works with industry to identifynew technologies that are ripe for near-term economicexploitation. Government then encourages companies thatwill eventually be competing with each other to share infor-mation and cooperate during the early stages of research anddevelopment. This contrasts with the U.S. pattern of business-government relations, where such cooperation is deemedanti-competitive under some conditions.
In Japan, the government funds strategic research initiativeswith the participation of industry, universities, and govern-ment to develop new materials and Li-ion battery construc-tions for new applications. These initiatives often involve sci-entists and engineers from several companies and universi-ties, along with government laboratories. The people in theseprograms meet regularly to discuss progress and plan the nextactivity. They freely exchange information and results.
In South Korea and China, among other countries, the govern-ment will loan companies the funds to establish automatedmanufacturing facilities to produce Li-ion and Li-ion polymer Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

batteries. These loans are often made at low interest rates, andmay be forgiven if a certain level of production is reached.
Countries such as Northern Ireland and Singapore offerincentives to establish essential strategic research, develop-ment, and manufacturing for advanced batteries on theirshores. For instance, Valence Technology received up to $40million in matching funds from the United Kingdom to estab-lish a manufacturing plant in Northern Ireland. The agree-ment included conditions and goals relating to the number ofemployees, the amount of production, and the like. Thesearrangements are powerful enticements for U.S. companies tomove production abroad.
Compared with Asian countries, the United States makes lit-tle funding available to assist companies in addressing longer-term research. The Advanced Technology Program is anexception to the pattern, with its mandate to initiate changeby offsetting some of the costs of technically risky, longer-term research with potentially broad national benefit.
However, its resources are small. With the exception of its relatively small funding through theATP and Small Business Innovative Research (SBIR) pro-grams, the U.S. government essentially does not fund researchwith a commercial purpose, and U.S. companies seldom funduniversity research because the university would generallyrequire ownership of all resulting intellectual property (IP),regardless of the source of funding. ATP's focus is on cost-sharing industry-led projects with strong commercial poten-tial. ATP has funded $2.3 billion in advanced technologydevelopment, with industry cost sharing an additional $2.3billion in their ATP projects. The ATP also fosters collabora-tive R&D among suppliers and manufacturers and with universities. More than four out of five projects involve col-laboration among multiple organizations. About three out offive projects have university participation. Over one out offour projects is an industry-led joint venture. ATP Working Paper
The Department of Defense and the Department of Energysupport most of the U.S. university research on new batterymaterials. Most of this research is for military applications,however, complicating the transfer of the technology devel-oped in these programs to industry. Only a few small manu-facturers are dedicated to such niche military markets. TheU.S. Auto Battery Consortium (USABC) and its survivors do not fund pure research, per se. In spite of investments inexcess of $200 million, none of these programs has produceda new commercial battery. Although support exists for battery-related R&D at the national laboratories, these laboratorieshave little direct connection to battery and materials compa-nies that would commercialize the results.
Many new products developed by Japanese companies arederived from university research supported by company fund-ing. The Japanese government funds strategic R&D programsinvolving people from universities as well as from companies.
The information is shared with all those involved in a partic-ular program. Because of antitrust considerations, it is diffi-cult and unusual for U.S. companies to engage in informa-tion-sharing outside of government-sponsored R&D consor-tia projects, such as those funded by ATP.
Essentially all interviewees agreed that qualified people are the key element to technology development and transfer to production. The number of qualified research people in thebattery industry is limited. A large number of highly quali-fied materials scientists graduate from universities but arenot specifically trained for industrial research in battery tech-nology. Often these students have been trained in basicresearch, but not in applied research, and often they lack theskills or philosophy required for applied research. Batterycompanies expect to spend an additional two to three years Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

training new hires before they can work effectively in anindustrial environment.
Industrial recruiters look for individuals with experience in electrochemical materials research—those who are self-starting, creative, and, as demonstrated in thesis work, have acapacity for unorthodox thinking. Characteristics for newhires include that they must be willing to work on a team fora common result, not be adversarial, and not feel threatened.
They must be capable of expressing themselves and theiropinions clearly in give-and-take discussions.
V. Conclusion: Why Are There No
Volume Li-ion Manufacturers
in the United States?

Dramatic growth in the rechargeable battery market duringthe 1990s and into the new century has been dependent on anumber of factors. These include: the exponential growth of the portable electronic productmarket sector; the ability to introduce improved rechargeable batterytechnology and rapidly ramp up production levels to meetdemand; delivery of high quality and safe products, competing onmarket share over margins; the openness of non-vertically integrated portable com-puter and cell phone producers; strong product OEM relationships; and aggressive price reductions throughout the industry.
The major U.S. battery producers were not well positioned tocompete along these factors. The competition from Asiancompanies caused most major North American rechargeablecell manufacturers to strategically exit the business. The U.S.
battery companies "opted out" of volume manufacturing ofLi-ion batteries, primarily because of a low return on invest-ment compared to their existing businesses. Battery technol-ogy requires significant time and investment from conceptionto commercialization. An important consideration for U.S.
ATP Working Paper
battery manufacturers was the time and expense required toestablish a sales organization in Japan to access productdesign opportunities. One Japanese interviewee reported thatthe Americans just gave up the fight.
Interviews conducted with numerous U.S. companies suggestthat the U.S. companies missed the growth curve. Japanesecompanies gained considerable "first-to-market" advantage inobtaining high prices and profits initially. By the time U.S.
companies decided to begin commercialization, prices forcells were dropping. U.S. companies had not anticipated therapidity with which the Japanese companies would developand commercialize Li-ion technologies.
According to one U.S. VP of technology, their financial analy-sis indicated that they could produce cells in the United Statesfor essentially the same cost as their Japanese counterparts.
The analysis also showed, however, that the profits deliveredby the Li-ion venture would be significantly lower than thatdelivered by their alkaline cell business. Thus U.S. companieswere unwilling to tolerate the market pressure for quarterlyprofits and lower personal bonuses, in order to invest in thefuture. In contrast, Japanese companies sought market sharerather than short-term profits and were more willing to makeinvestments for the longer term.
Also contributing to the decision-making environment werestructural differences between U.S. and Japanese businessenvironments. For example, for U.S. companies, marketingcosts were higher for rechargeable batteries than for alkalinecells. Since most device designers and customers were locat-ed in Japan, U.S. companies would need a strong sales effortto compete overseas, especially in Japan. Establishing a pres-ence in Japan for a company generally requires five to sevenyears of intense activity to be effective. In-house utilization ofLi-ion batteries by the vertically integrated Japanese con-sumer electronics companies functions as a trade barrier toU.S. companies seeking to do business in Japan. In the Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

absence of an American version of the Japanese verticallyintegrated consumer electronics company, U.S. battery pro-ducers might have teamed up with U.S. manufacturers of cellphones, notebooks, and other portable devices, such asMotorola, Dell, and HP (now including Compaq), but didnot. In a short period of time, the U.S. companies exited thebusiness.
Labor costs were not a critical or deciding issue, as the cost toproduce cells in the United States was essentially the same asfor the Japanese manufacturers. The Asian strategy of provid-ing facilities and loans to establish local manufacturing andcreate jobs at home proved more important. On the otherhand, labor costs were instrumental in locating battery packassembly plants, with repercussions ultimately for higher-val-ued processes.
Structural differences of Japanese electronic products indus-try compared with its U.S. counterpart create barriers to U.S.
firms seeking to market rechargeable batteries or batterymaterials in Japan. In markets for rechargeable batteries, cus-tomers are large, high-technology-based electronics compa-nies, typically having Li-ion production within the same com-pany. Developing a product requires close contact withportable electronic device designers.
Huge investments have been made in Japan, Taiwan, SouthKorea, and Southeast Asia in a global effort to capture themarket for rechargeable batteries for telecommunications,wireless, and computer products. The magnitude of theinvestment in Asia has been such that the United States pro-gressively has lost its technological position, despite the factthat U.S. and Canadian researchers provided many of the crit-ical technology breakthroughs required to establish the tech-nical feasibility of the currently pre-eminent Li-ion polymerbattery. North American companies failed to capitalize on thisearly technological leadership, and Asian companies havesince established a dominant position in the production of ATP Working Paper
Li-ion polymer batteries. The United States has become anincubator for new technologies and materials for rechargeablebatteries, while the Asian companies have developed the man-ufacturing expertise and capital facilities to profit from thetechnology and build their presence at home.
The United States still leads in developing new technologyand is the major source for new concepts in battery, fuel cell,and display technologies. In a real sense, the United States hasbecome an incubator for new technologies relating to theelectronics industry, while Asian and European companies aredeveloping the manufacturing expertise. In Korea, KIST, theKorean Institute of Standards and Technology, has a goal oftransferring the good technology ideas developed by smallU.S. companies to the large Korean manufacturers. Similarly,most large Japanese producers maintain a technology surveil-lance unit in the United States to identify promising new tech-nology for use in their new products.
The tendency may be for technological development to followmanufacturing in moving to East Asia. This would be a natu-ral consequence of East Asian companies' developing manu-facturing expertise. Primary as well as rechargeable batteryproduction may slowly shift to China, Korea, and SoutheastAsia following Japan's initial lead in rechargeable battery pro-duction. U.S. manufacturers pursuing other budding energytechnologies, such as fuel cells, will face similar issues.
Opportunities still exist for companies to successfully enterniche markets, such as those with medical, military, or spaceapplications.
VI. Implications for
To what extent are the factors affecting U.S. production deci-sions by the battery industry common to other U.S. indus-tries? And what are the implications, particularly for buddingenergy technologies, but also for more mature electronicsindustries, such as flat-panel displays, which have beenmigrating offshore for some time? To avoid erosion of technological and economic leadership, Fuel cells
North American companies will need to make sufficientinvestments to build the infrastructure for successful com-mercialization of emerging energy technologies. The findingsof this study concerning Li-ion battery technologies can beapplied directly to fuel cells. The U.S. government has identi-fied fuel cells as a means to reduce dependence on importedfossil fuels. Development efforts in fuel cell technology aredivided into three applications: 1) small power sources forportable electronic devices; 2) larger units for transportation;and 3) stationary power for providing electricity for buildingsand homes on-site. Of these, stationary power generationdemonstrates the most significant potential market. Viablemarket applications include uninterruptible power suppliesto maintain critical processes that are intolerant of powerinterruptions. Fuel cell applications in portable electronicdevices offer the strongest parallels to Li-ion batteries.
All Asian and European manufacturers of portable elec-tronic devices have fuel cell programs. These companies have representatives in the United States that closely follow the ATP Working Paper
technology developments on the U.S. scene while planningtheir own product development.
Fuel cell applications in portable electronic devices, specifi-cally direct methanol fuel cell (DMFC) technology, have thestrongest parallels to Li-ion batteries. The status of develop-ing DMFC technology for small portable electronic devicesclearly falls into the development phase. The electrolytemembrane needs improvement, the cost of the platinum-rhodium catalyst loading is too high, and the best cell con-figuration has not yet been determined. Furthermore, thebest concentration of methanol is still being explored. Thisfuel cell technology is ready to transition into advanceddevelopment, which constitutes the first step toward com-mercialization. This stage requires a considerable investmentin equipment and pilot facilities for assembly and testing ofthe DMFC prior to manufacturing. The present cell designsvary from one company to the next, and some aspects of theirproduction lend themselves to hand assembly rather thanautomated production. Some phases of production can beautomated; for example, roll-to-roll facilities must bedesigned and implemented.
Approaches representing a significant departure from presentpractices appear to have a chance for market success. Forexample, Neah Power, Inc., is pursuing a silicon-based fuel-cell technology. This shows some promise. The work of MTIunder the auspices of an ATP award is making progress usingpure methanol to avoid some water management problems.
They have demonstrated a cellular phone charger.
It is impossible to predict with certainty what route fuel cellswill take to commercialization. The fuel cell developers withdeep pockets can afford to develop automated cell assembly.
Once equipment design begins, it generally takes 18 to 24months to commission a plant. If funds are unavailable, or ifthere is a rush to market, companies can be expected toexplore hand cell assembly in Southeast Asia or China, as Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

opposed to automated assembly in the United States, therebytaking advantage of low labor costs and minimizing invest-ment in equipment. In this scenario, production can beginwith a minimal investment in tooling and increasing pro-duction is just a matter of adding hand tooling and morepeople. Manual production results in greater variability inproduct quality than with automated production, but is gen-erally acceptable with proper quality control.
At the present time, no U.S. company has committed to vol-ume production of DMFC fuel cells. Although Motorolaannounced two years ago that it would have a methanol-based fuel cell in two years, they recently reduced their effortsand no longer have a timeframe for introducing such a prod-uct. All work is in the advanced developmental stage. Aninterviewee who works for a Japanese electronics companythat has its own fuel cell program expects that the U.S. devel-opers will not manufacture in the United States, but rather inJapan, Southeast Asia, or China. Several Asian companiesappear to be close to commercialization, including Samsung,NEC, Casio, and Toshiba. NEC exhibited a DMFC-powerednotebook computer at the WPC EXPO 2004. The date fortheir commercial introduction has not been set.
Micro fuel cells, as well as larger stationary units, in particu-lar, have a window of opportunity to start manufacture in theUnited States.
Commercial development of other technologies, such as dis- Displays
plays and chip fabrication, can be expected to follow the same pattern that has applied to Li-ion batteries and might apply to fuel cells. Manufacturing in the United States will requireinvestment in automated production. With such automatedproduction, it is possible to produce high quality products atcompetitive costs. Like the structural advantages Asian firmsenjoy at home in the Li-ion industry, similar advantages will ATP Working Paper
be present for Asian companies in domestic display and chipfabrication production. The United States still enjoys the leadin chip manufacturing, where U.S. companies made a sub-stantial investment following their lead in technology devel-opment. Assembly into electronic devices is now predomi-nantly off shore, by U.S. and Asian OEMs.
The Japanese automobile companies have established a clearlead in developing hybrid gas-electric cars (HEV) using a Ni-MH battery for electrical power and regenerative breaking.
Their second generation vehicles have substantially improvedperformance and are in the market. In the meantime, they aredeveloping new low cost-high power Li-ion batteries for thenext generation vehicles. Although government fundedresearch on new materials in the United States has developednew high performance–low cost materials, no U.S. Li-ion battery manufacturer is positioned to supply this developingHEV market.
ATP and other agencies recognize that investment in research Further Work
and development of new technologies entails considerable business uncertainties as well as technical risks. For manytechnologies, pathways to economic benefits for the UnitedStates will entail additional complexities as portions of thecommercialization process occur offshore. A successfulinvestment strategy will include realistic appraisal of the like-lihood of commercialization: i n the United States; by U.S. firms abroad; and by non-U.S. firms where U.S. industry and individual con-sumers are significant beneficiaries.
Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

The current study is an effort to identify some key factors indecisions to engage in offshore production in the commer-cialization of rechargeable battery and related technologies.
Additional in-depth study is needed to explore specific path-ways and to quantify benefits to the United States where sig-nificant commercialization activity occurs offshore.
S. Basu, U.S. Patent 4,423,125, December 27, 1983 J. O. Besenhard and H. P. Fritz, J. Electroanal. Chem, 53,329(1974) K. Mizushima, P.C. Jones, P. J. Wiseman, J. B. Goodenough,Matr. Res. Bull. 15, 783(1980) D. Linden and T. Reddy, "Handbook of Batteries," McGraw-Hill, New York, Third Edition, 2001.
National Electronic Manufacturers Initiative, Inc. Road Map,Energy Storage Systems.
Press Release, Valence Technology, August 13, 2003, "Valenceto Transfer Manufacturing Operations from Northern Irelandto China." Press Release, Energizer, Inc. April 26, 2000, EnergizerHoldings, Inc. "Announces Second Quarter Earnings" Press Release Gillette August 11, 2003 "The Gillette CompanyAcquires a Majority Interest in Fujian Nanping Nanfu BatteryCo., Ltd." Press Release, Rayovac, January 19, 2004, "Rayovac toAcquire 85% of Ningbo Baowang China Battery Company" H. Takashita, Proceedings of the 19th International Seminarof Primary and Secondary Batteries, Ft. Lauderdale FL, March11–14, 2002.
Louis Uchitelle, "As Factories Move Abroad, So Does U.S.
Power" The New York Times, August 17, 2003.
ATP Working Paper
H. Takeshita, "Worldwide Battery Market Status andForecast," Portable Power Conference Proceedings,September 21-23, 2003.
R. Yazami and P. Touzain, J. Power Sources, 9, 365(1983) A. Yoshino, The Chemical Industry, 146, 870 (1995).
Appendix 1. Interview Questions
and Discussion Topics

Broddarp of Nevada designed and administered the followingquestions to 40 individuals representing over 35 organiza-tions, including major battery companies, materials and com-ponent suppliers, the military and government, venture capi-tal and start-up companies, intellectual property experts,OEMs, and universities.
Why are there no large volume Li-ion or other advancedbattery manufacturers in the U.S.? Identify the factors affecting the introduction of newrechargeable batteries in the United States. What are thebarriers to commercializing new battery technology? What are the business strategies (industry) and policymechanisms (government) that relate to these issues? What are the implications for selection and funding forprojects in the fuel cell area? Assess relevance of these findings to other electronic-mate-rial technologies, e.g., displays and consumer electronics.
Consider new initiatives in national policy and businessstrategies to address these problems.
These questions were asked in the context of broader discus-sion of the following topics: General industry characteristics for success in incorpo-rating new technology (How do you recognize that a tech-nology is ready for commercialization?) ATP Working Paper
Impact of labor costs (Type of production, mass or niche) Capital costs for new facilities (Cost per cell, cost per tonfor a new product and its impact on decisionmaking) Existing manufacturing infrastructure on a global basis(Importance of support structure and its availability) OEM requirements and philosophy (Customer require-ments for supply of product; how to identify new productopportunities) Replacement market (OEM vs. consumer, relative size) Intellectual property issues, competitive technologyadvantage (How important for new product vs. improvement;venture vs. current manufacturer) Logistics considerations (Shipping costs, etc., plant loca-tion, transportation of supplies) Government policies (Effect on decisions, changes toencourage new product development) Investment in R&D and in new equipment (In-house vs.
purchased, major analytical items
) People impact — characteristics of for successful imple-mentation (Availability of qualified personnel, type, how toidentify, etc.) Appendix 2.
List of Organizations
Represented in Interviews

Listed below are the companies, universities, and federal labo-ratories represented by our interviews. In some cases, we inter-viewed multiple individuals, representing different functions.
Argonne National Laboratory Blomgren Associates Cooper Electronics Energizer (active and retired individuals) Eltech (retired individual) Duracell (active and retired individuals) INCO Specialty Products ATP Working Paper
Superior Graphite Toshiba (retired individual) University of Texas Valence Technology Appendix 3.
Li-ion Batteries: Market Trends

In the 1990s, sales of Li-ion systems experienced an annualaverage growth rate of 15 percent or more. This rate slowedduring the 2000 to 2001 time period. Current forecasts callfor the Li-ion segment to grow between 5 percent and 10 peryear in unit sales, but it is expected to show little growth invalue during the first decade of the new century. Figure A3.1summarizes production trends for Li-ion batteries, as assessedby Cambridge, MA-based Tiax.
As shown in Figure A3.2, prices for cylindrical cells havedeclined considerably over the past ten years. At their intro-duction, Li-ion cells sold for almost $4 per watt-hour (Wh).
By 1995, the price had fallen to the range of $1.50 to$2.00/Wh. The pricing had some differentiation betweencylindrical, prismatic, and polymer cell constructions, withpolymer and prismatic cells commanding a higher price. Asthe production volume grew and competition increased, pro-duction exceeded demand and the selling price for cellsdecreased dramatically. The prismatic and polymer systemshave maintained somewhat higher price levels than the18650 cell, which is an industry standard used for compari-son purposes.
Since their introduction in 1999, Li-ion polymer cells havedemanded a higher price than other rechargeable batteries.
The perceived value and lighter weight of the polymer elec-trolyte, give the Li-ion polymer cells greater commercialvalue. Initially, production costs were higher for Li-ion bat-teries, as they required new production equipment, whereas ATP Working Paper
Figure A3.1. Worldwide Production of Li-ion Cells, 1995 – 2002
Production Volume (million cells) Source: Tiax.
Figure A3.2. Performance and Price Erosion in Li-ion Market, 1991 – 2001
Source: Institute of Information Technology, Ltd. Japan. 2002.
Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

Ni-MH batteries could be produced using the same equip-ment as that used for Ni-Cd batteries. Prices will soon dropfor Li-ion polymer cells, however, following trends thatapplied for Li-ion cells. Because the chemistry is the same, theenergy storage capability is the same for Li-ion polymer andLi-ion technologies. The Li-ion polymer cell uses a soft pack-aging that is lighter and lower in cost. With time, both Li-ionand Li-ion polymer cells should approach the same sellingprice, with Li-ion polymer cells having an edge due to lowerpackaging costs.
Figure A3.3 shows the distribution of the rechargeable mar-kets by each use.
Li-ion battery sales growth stalled in 2001, with global Li-ionbattery production growing only 3.7 percent to 560 millionunits, and falling by 11.1 percent in value to 336 billion yendue to lower prices (as reported by Japan-based marketresearch firm Chunichisha). Unit production did not grow ata double-digit rate due to weak demand from mobile phones,which account for 50 percent of the Li-ion battery use. Notethat these data are not consistent with Figure 3.1. This may bebecause Chunichisha missed the increased production vol-ume in China and South Korea by 2002. In addition, pricesfell as low as 500 yen for a 18650 size cell during the secondhalf of 2001, and prices are facing further pressure from low-priced products from China and South Korea and down-stream electronics assemblers.
ATP Working Paper
Figure A3.3. Uses for Each type of Battery
2003CY cell demand (million cells) Source: Institute of Information Technology, Ltd. Japan. 2002.
Appendix 4. Comparison of
Battery Technologies

Batteries are portable sources of stored chemical energy thatconvert directly into electrical energy at high efficiency ondemand. Primary batteries are used once and then thrownaway. Secondary, or rechargeable, batteries can be electricallyrestored to their original chemical state.
Table A4.1 summarizes the recent and expected future world-wide market sizes for these broad classes of batteries. As of2002, the total market was about $54 billion, with an annualoverall growth rate of about 7 percent for primary cells and 8percent for secondary cells. In the United States (not singledout in the table) 2002 battery market and battery relatedproduct market sales totalled $11.4 billion and were forecast-ed to grow to $15.5 billion by 2007, a projected average annu-al growth rate of 6.4 percent.
In the secondary, or rechargeable, category several entirelynew classes of batteries have been commercialized during thepast 15 years, including Ni-MH, Li-ion polymer, Li-ionrechargeable alkaline, and mechanically rechargeable zinc-airdesigns. The small, sealed battery market segment, not listedseparately by Freedonia, includes nickel cadmium (Ni-Cd),Ni-MH, and Li-ion. In Table A4.1, the Li-ion battery system isincluded in the Other category, while its competitors Ni-MHand Ni-Cd are included in the Nickel battery category. Thissegment serves as the energy source for the portable electron-ic device market and has seen spectacular growth over thepast 10 to 12 years.
ATP Working Paper
Table A4.1. Estimated Sales of Batteries, Worldwide ($, Millions) 2002
Source: The Freedonia Group Improved microelectronic battery charger controller technol-ogy—in particular lithium-ion polymer and lithium-ion—isenabling the commercialization of these new classes of bat-teries. It is also improving the marketability of existing bat-tery systems, e.g., nickel cadmium and lead acid. In turn, thishas accelerated portable computer, cellular telephone, andcordless hand tool product development to a degree thatwould be impossible without improved power management.
Nevertheless, non-rechargeable batteries maintain theirestablished role as the power source for many kinds ofportable products.
Figure A4.1 compares the energy storage capability of thesenew systems. Energy storage is expressed as watt-hours perunit volume (Wh/l) and watt-hours per unit weight (Wh/kg).
The larger values of Wh/l translate into a smaller cell, whilelarger values for Wh/kg translate into lighter weight for a Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

Figure A4.1. Comparison of Energy Density of Various Small, Sealed Battery Systems
100 200 300 400 500 given cell voltage and ampere-hour capacity. The high valuesof Wh/l and Wh/kg have been key factors in its rapid growth.
In the marketplace, the small, sealed rechargeable battery sys-tems form a unique market segment in the sense that theycompete for similar portable applications. Sealed lead acidmay also be included in this category. Table A4.2 comparesthe advantages and disadvantages of the various battery sys-tems along with their principal applications.
The market for portable battery-powered products has grownfrom a few well-established niches, such as flashlights,portable radio, cassette and CD players, and wristwatches, toa diverse rapidly growing market that encompasses electronic ATP Working Paper
computers, communications and entertainment products, avariety of cordless tools, and whole new classes of militaryand medical products. This diversity has been accomplishedbecause of the unique synergy between the products them-selves, the batteries they employ, and the battery charger andpower management systems that charge the batteries.
Table A4.2. Summary of Performance and Applications for Small, Sealed Rechargeable
Batteries

Highest energy storage (Wh/l) Relatively expensive Electronic protection circuitry Notebook Computers Thermal runaway concern High energy efficiency Not tolerant of overcharge or High unit-cell voltage Lithium-ion Polymer (Li-ion Polymer)
Same chemistry as Li-ion Same applications as Li-ion Lighter weight (Wh/kg) Plasticized electrolyte Flexible footprint Internal bonding of anode to cathode Nickel Metal Hydride (Ni-MH)
Higher capacity than Ni-Cd Poor charge retention Low-end electronic devices High cost negative First production in 1992 Lower high rate than Ni-CdLow unit-cell voltage Nickel Cadmium (Ni-Cd)
Long cycle life
Excellent high rate Environmental concerns Low-end electronic devices Good low temperature Poor charge retention Low unit-cell voltage Low energy density Emergency lighting Sealed value regulated technology Sulfation on stand Intermediate unit-cell voltage Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

Table A4.3 summarizes market sizes for small, sealed batter-ies and the expected near-term trend as of 2000. Li-ion andLi-ion polymer systems, along with Ni-MH and Ni-Cd sys-tems, compete in the market segment for small, sealed,rechargeable batteries. Notebook computers and cellular tele-phones are the major applications for Li-ion batteries. Otherapplications include video cameras, digital cameras, and DVDand CD players. These have been high growth applications foralmost 10 years. The high-energy, lightweight Li-ion batteriesgive these devices longer run time and greater portability andhave, over the past 10 years, doubled the runtime possiblebetween charges, which has been a critical factor in gainingconsumer acceptance of new products. Formerly, the Ni-Cdsystem dominated this category. Because of its lower energystorage capability, it is no longer a big factor in this segment,although Ni-Cd does find application in low-cost devices andpower tools.
Table A4.3. Market Data for Unit Cell Production and Dollar Value for Rechargeable
Batteries for 2000 with Estimated Growth to 2003

Millions of Cells Value ($Millions) Millions of Cells Value ($Millions) Millions of Cells Value ($Millions) Millions of Cells Value ($Millions) Source: Institute of Information Technology, Ltd. Japan. 2002.
Appendix 5. Li-ion Batteries:
Market Participants

According to Yoshino, Asahi Chemicals in Japan started R&Dwork on Li-ion batteries in the early 1980s and acquired thefirst patents on its technology in 1987. Sony published detailsof its system in 1991. Device manufacturers quickly saw theadvantages of longer lasting, lighter weight batteries for theircellular phones and notebook computers. The Li-ion systemprovided up to four times the run time with one-third theweight of the Ni-Cd system, which was the standard of per-formance at the time.
These initial Li-ion manufacturers were large electronics com-panies with active battery R&D and manufacturing. Sony,Matsushita, and Sanyo all had significant R&D programs inthe area, and each invested about $150 million in productionfacilities in quick succession. Starting in 1991, they investedheavily in production capability; this investment continuedthroughout the decade and, in some cases, amounted to asmuch as $1 to $2 billion or more. Motorola had a significantR&D effort to develop its own Li-ion polymer technology.
After completing the development, rather than pilot and pro-duce the cells themselves, Motorola decided to license thetechnology as did Telcordia (now SAIC).
Today the principal manufacturers of Li-ion batteries are, withthe exception of BYD in China, large, vertically integratedJapanese and Korean producers of consumer electronics.
These account for all of the Li-ion batteries produced inJapan, where about 80 percent of the world's production of ATP Working Paper
Li-ion batteries is located (the rest is in China, Taiwan, andSouth Korea).
Japanese Li-ion battery production goes first to captive in-house uses for a company's own portable electronic devices.
The remaining production (a sizable percentage of the totalproduction) is sold to other original equipment manufacturers(OEMs) of portable devices. These manufacturers have estab-lished very high standards for quality, performance, and safetyfor their products. Device designers will share future productdevelopment and designs within their own company but arereluctant to share the same data with outside suppliers.
Figure A5.1 summarizes current market shares for Li-ion bat-teries, as assessed by the Institute of Information Technology,Ltd. Its data show that volume exceeded 800 million cells by2002, when value reached nearly $3 billion.
Although Ni-MH and Li-ion had been forecast to replace Ni-Cd batteries, it should be noted that Ni-MH and Li-ion sys-tems took the market expansion, while the Ni-Cd systemsmaintained the low-end electronics and power-tool markets.
In 2003, BYD of China became a significant supplier, as didSouth Korean companies Samsung and LG Chemical (former-ly Lucky-Goldstar). The manufacture of Li-ion batteries hasbegun to shift from Japan to China as some major producerstake advantage of the Chinese government's willingness toprovide low-cost loans and production facilities or support forcompanies that bring strategic new technologies to China.
South Korea also provides government incentives and hasessentially the same cost structure as China. In the past threeyears, Samsung and LG Chemicals entered the market.
Samsung penetrated the market and captured the fifth spot inproduction capability, with LG not far behind.
Major Japanese and Korean manufacturers of portable elec-tronic devices have their own integrated Li-ion battery pro-duction facilities. They have pursued aggressive research and Factors Affecting U.S. Production
Decisions: Why are There No
Volume Lithium-Ion Battery
Manufacturers in the United States?

Figure A5.1. Li-ion Market Share for 2002
Maxell NEC Others Source: Institute of Information Technology, Ltd. Japan. 2002.
development efforts, leading the way in making engineeringimprovements as well as developing new materials to enhanceLi-ion performance. The governments of South Korea andChina have made Li-ion systems a strategic technology. Bothgovernments have encouraged investment in the develop-ment of new technology, and support new production facili-ties with loans or grants.
In preparation for the 2008 Olympics, the Chinese govern-ment has designated both Li-ion and fuel cell systems as strate-gic technologies. This has attracted new production fromJapan to China, given the potential size of Chinese markets forportable electronics devices. New production facilities arebeing constructed in China, some as joint ventures betweenChinese companies and major Japanese companies. As a quidpro quo, Chinese participants get government funding to assistin building facilities, and the Japanese partner supplies thetechnology.
ATP Working Paper
Battery pack assembly operations have been shifting fromMexico to China to take advantage of lower labor costs. Thisis the most labor-intensive part of battery manufacturing.

Source: http://www.modtech-corp.com/pdf/Why%20are%20there%20no%20volume%20lithium%20ion%20battery%20manufacturers%20in%20the%20US.pdf

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