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The Road to Electric Vehicles Runs through Apple

Earlier this week Clifton Yin and Matthew Stepp of The Information Technology & Innovation Foundation published an article entitled “Shifting Gears: Transcending Conventional Economic Doctrines to Develop Better Electric Vehicle Batteries”.  The article contains an excellent discussion of the need for the vehicle electrification and the advantages of electric vehicles relative to competing technologies.  It also contains an accurate and sobering analysis of the poor prospects for vehicle electrification in light of the current state of advanced battery technology.  The full article may be read by clicking here.

Yin and Stepp talk about how best to encourage the development of improved battery technology.  They discuss and discount what they call the neo-Keynesian approach (i.e., subsidies) and the neoclassical economics approach (i.e., using and manipulating market price signals, such as by imposing a carbon tax) as ways to promote more rapid progress in battery technology.  Instead, Yin and Stepp advocate what they call the emerging doctrine of innovation economics:  “facilitating innovative actions and support[ing] complex innovation systems with a variety of policy tools in order to move the economy in a strategic direction.”

Innovation economics is, of course, not a new idea.  It is the concept that led, among other things, to the creation of the ARPA-E program at the U.S. Department of Energy.  Basically, the idea is that new technologies need to be appropriately supported at every step of their development up through the value chain.  The original concept may be developed at a government-funded laboratory or university.  From there it moves to a government-funded incubator program, such as ARPA-E.  After graduating ARPA-E, it moves to another government program focused on more mature technologies, such as the grant programs administered by EERE.  And then perhaps on to a venture-backed company or a corporate R&D program before its final debut in the marketplace.  At each stage the technology is evaluated and the winners and losers vetted by those running the applicable stage of the process.   

The problem with innovation economics, however, is that it is entirely theoretical. No successful commercial product in the battery industry has ever been launched through such a process and, to my knowledge, there is no prospect of such a successful launch happening anytime soon.

For battery technology to develop to the point where mass adoption of PHEV’s and BEV’s will be possible, there must be a real, existing market for advanced batteries that will allow the technology to be market tested and to mature.  For the past several years the federal government has spent billions of dollars trying to develop such a market in the automobile industry.  The problem is: that may be the wrong industry.

While the ultimate goal of advanced battery technology may be to power light vehicles and to liberate them from their near total dependence on petroleum-based fuels, it is far from clear that the best path to that goal lies through developing batteries for the automotive market.  Automobiles are a poor platform for developing new technology.  Product development cycles in the automobile industry can stretch for more than a decade.  That is far too long for any company focused on developing new technology to survive without cash flow from a commercial product.  The bankruptcy courts are filling quickly with advanced battery companies that tried to survive the automotive product development cycle but failed.

That is not to disparage the technological expertise of automobile manufacturers.  The Chevy Volt, by way of example, is truly an engineering marvel.  But properly understood, it is not new technology.  The Volt is an intricately engineered package of mature, proven technologies.  In the case of the battery, the Volt uses technology that was developed over two decades in the consumer electronics industry.  That is why LG Chem, a South Korean company with years of experience in consumer electronics, has the contract to manufacture it.

The key to advancing battery technology, and to making sure that the United States is a center for battery manufacturing, is not to develop an elaborate, government-funded R&D infrastructure.  The key is to make sure that U.S. battery companies have a market for their products.  Equally important, that market must be one with a short product development cycle, where new technologies can be brought to market quickly and successful technology developers can be rewarded in the marketplace in sufficient time to produce a reasonable return on investment.

Such a market for advanced battery technology already exists.  It is called the consumer electronics or, in its more current iteration, mobile applications market.  Product development cycles in the mobile apps market typically run about three or four years, as opposed to ten to twelve in the automobile industry.  That means that three or four generations of new battery technology can be developed, vetted and market tested in the mobile apps industry for every one generation of new battery technology rolled out in the automotive industry.  Faster battery product development cycles match precisely to the enduring strength of American industry:  technology innovation.  Where American industry has struggled in the battery space is not in developing new technology; it has struggled in getting that new technology to market.

The difficulty of U.S. manufactures getting new battery technologies to market is explained by the fact that no major manufacturing of mobile apps devices takes place in the United States today.  (The manufacturing of military mobile apps is an exception, and potentially an important one as the line between military and civilian mobile apps devices becomes thinner by the day).  The consumer electronics/mobile apps business was effectively outsourced to Asia thirty years ago and U.S. battery companies have been shut out of its supply chain ever since.  If we want to make progress in advanced battery technology—and if we want battery-powered electric vehicles anytime soon–we need to bring the mobile apps device industry back to the United States.

The best and most effective thing that the federal government can do to promote vehicle electrification in the United States is to provide U.S.-based battery makers with a vibrant market that can quickly commercialize new battery products as they come out of the development pipeline.  The auto industry may not initially be the best market to do that.  But the mobile apps device industry may be.

The road to the electric vehicle will lead eventually to General Motors.  But in order to get there it may first need to detour through Apple, Google and HP.  Bringing manufacturing of mobile apps devices back to the United States would have advantages well beyond its positive impact on advanced battery technology and vehicle electrification.  The U.S. advanced battery industry would welcome a discussion about how best to make that happen.

James Greenberger's picture

Thank James for the Post!

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Rick Engebretson's picture
Rick Engebretson on Oct 14, 2012 12:55 am GMT

Firstly, I'm a doubter about batteries moving a world of cars. But you encouraged input, so here is some.

I know engineers with Apple. With their recent roll-out I commented how similar their product is to biomedical products of my younger days. Medtronics, Inc. makes heart pacemakers that run on batteries, and now all sorts of smart devices like insulin pumps attach to people and run on advanced batteries. The old days of "swallow this pill twice a day" have been greatly superseded. I'm sure you know this, but it's worth including.

As for cars, an excellent battery entry market already exists with hybrid cars. Better battery technology can already grow market share over time.

So I've never understood the big betting on all electric cars. The physics of weight, materials, sophistication seems to have always biased cost efficient cars against batteries.

Oscar Fleury's picture
Oscar Fleury on Oct 14, 2012 12:54 pm GMT

"... an excellent battery entry market already exists with hybrid cars."

RickEngebretson makes a good point here -- alas, only too good for the tenants of Big Oil, who fear indeed the hybrid car as an ideal platform for the evolution towards the full electric car.

Moreover, together with their friends from the automotive sector, they fear the full electric car as an ideal platform for the evolution towards the personal electric ultra-light aircraft -- and that's where their other friends from the Pentagon will start becoming nervous at the perspective of the civil society taking possession of the global airspace with myriads of ultra-light electric tilt-rotor aircraft challenging their power enforcment joker based on total air superiority...

Yet there could be a huge market for ULMs through a vast coalition of NGOs -- with the merger of Greenpeace, Red Cross, Green Cross, Amnesty International, Doctors of the world, Doctors without borders, etc., who are altogether suffering a dramatic lack of airborn intervention capabilities...

Bob Meinetz's picture
Bob Meinetz on Oct 14, 2012 9:39 pm GMT

It's ironic that you decry government-funded R&D efforts then point to LG Chem, which has depended for decades on substantial tax breaks from the South Korean government for research. Innovation economics, which you claim are "entirely theoretical", are exactly why Asian producers are at the forefront of battery tech. In the case of large-format batteries, naively depending on market forces to provide enough investment in a product with a 10-year development pipeline will only put the U.S. further behind than it already is.

Large-format batteries present an entirely different set of challenges than mobile-apps batteries, which have thousands of times less storage, require only passive cooling, and do not require complex battery-management systems to coordinate the charging process. The fact that sheer will - and $465M in DOE loans - allowed Tesla to create a car which is essentially powered by iPhone batteries does not mean  large-format batteries will simply spring into existence because of market demand.

Though Milton Friedman would loathe admit it, governments are indispensable at jumpstarting development of products which benefit everyone. Contrary to your assertion, the automotive industry is a wonderful platform for new tech like catalytic converters, automotive glass, and shoulder harnesses. Although neither the public nor industry was clamoring for them (and even opposed them aggressively), the thought of a car without them is nowadays unthinkable. In this case we're talking about taking charge of our effects on climate and reduced dependence on scant resources, and nothing could be more important.

There seems to be a popular refrain these days that if government would just step aside, private enterprise will solve the problem. Then, unfortunately, reality gets in the way.

Matthew Stepp's picture
Matthew Stepp on Oct 15, 2012 7:27 pm GMT

Jim - 

Thanks for reading the report and laying out a comprehensive critique of Clifton and I's assessment.  Here are some counterpoints:

1. Innovation economics-based energy policies don't dictate that emerging technologies move from government program to government program. Instead, it's focused on accelerating technology innovation of new products and services. In other words, government investments in innovation, especially from research through commercialization aims to fill gaps in next-generation technology development.  The key to these policies working, though, is public-private partnerships to move technology development forward.  That's why programs like ARPA-E are so important: they invest in high-risk ideas (in industry, universities, Labs, etc.) to help them reach pilot stage so to entice industry and VCs to run with them. The same varied list of ways new ideas emerge from the Office of Science are a good example as well. So rather than saying its more about moving tech from program to program, it's more accurate to say innovation economics creates a path for emerging technologies to develop, whether that be from support from gov investments, industry investment, or both.

2. Innovation economics (and its policy approach) are not theoretical.  In fact, you have to look no further than the United States for just one example: the Department of Defense. DOD has an internal innovation ecosystem, with industry partners, gov investment, research, pilot programs, and a pathway to scale-up through the procurement budget.  Of course, DODs ecosystem model is but one way of supporting innovation - and is not directly aimed at commercial markets (though it's spurred commercial breakthroughs) - it's still a real-world example. Germany's basic research-applied research-manufacturing paradigm is another. Japan does something similar. Australia recently reorganized its energy programs to better align its innovation functions. The list goes on and on...

3. There have been successful commercial products in the battery industry launched through an innovation economics approach. Today, battery companies like A123 and the emerging company Envia are two recent examples of technologies that came from government sponsored research (National Labs), recieved ARPA-E grants to pilot, and have recieved scale-up investment (A123) or tech testing support (Envia) from VCs and industry. A123 reached commercial scale and is still innovating new battery designs to lower costs and Envia holds the potential of a significant cost breakthrough in battery packs of $300/kwh compared to today's $500/kWh.  These don't reach the $100/kWh goal I cite, but they're still innovations to build off of towards that goal. But even going back in time, the hybrid-electric vehicle industry, including its battery, comes from years of innovation investments by the US government as well as countries abroad like Korea and Japan. No doubt, the entire battery-based vehicle industry lends itself to an innovation economics type approach.  Our report simply says we need to do that more directly and aggressively.

4. I'm not too sure the key to better EV batteries is through the mobile tech market, instead I would just focus on battery manufacturing in general. If mobile devices are the driver of battery advancements, why are Korea and Japan not producing much better batteries? Why would a US mobile device manufacturer produce more battery advancements than an Asian mobile device manufacturer? Instead of looking to mobile device companies as the key to EV batteries, I propose we simply focus on the second part of your answer: battery manufacturing, and really, you mean demonstration and scale-up. It's true that the US is behind in advanced battery innovation.  Part of the reason is as you infer: the US let mobile device battery manufacturing move overseas decades ago and the innovation followed suit. Right now we're playing catch-up by investing in battery innovation and we need to do more.  But bringing back mobile device manufacturing as a strategy to produce better EV batteries (while not necessarily a bad thing by itself), is a very round-about way of doing it.

In our report we agree with your overall assessment and propose something different: more coordination among DOE-DOD-auto manufacturers to test new battery technologies.  Some of this is going on today through the DOE-DOD Memorandum of Understanding, though not nearly enough.  Formal partnering as part of a coordinated battery innovation strategy would be better and would provide the same type of real-world demonstration you seek. Another way to do it would be how DOE is working with auto companies to test new carbon fiber technologies.  DOE is currently building a user facility to test new production processes and materials so new ideas can quickly get to market.  One could easily think of a similar partnership to test new battery ideas. 

Anyway, thanks for your thoughtful comments and look forward to more discussion.

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