A123 Systems Inc develops and manufactures advanced lithium ion batteries and battery systems for the transportation, electric grid services and commercial markets. Headquartered in Massachusetts and founded in 2001, A123 Systems' proprietary nanoscale electrode technology is built on initial developments from the Massachusetts Institute of Technology. In this interview, Matthew Beecham talked with Jeff Kessen, director of automotive marketing, Automotive Solutions Group, A123 Systems.

just-auto: Last year’s stimulus package committed the US government to spending billions for batteries for electric cars. Do you think that the new manufacturing capacity could exceed the demand for electric vehicles and plug-in hybrids?

Jeff Kessen: Without question, government funding has been important to the successful execution of our business plan and manufacturing strategy. However, government funding alone could not have enabled us to expand our manufacturing capabilities as quickly as we have. Earlier this year we opened the largest operating lithium-ion plant in North America and accomplishing this required significant investment on our part as well. The new facility is a sound investment because of the very real, increasing market demand for our technology from our customers such as Fisker Automotive, BAE Systems, Navistar, Eaton and Shanghai Automotive Industry Corporation (the largest automaker in China).

Furthermore, many studies suggesting overcapacity in our industry overlook the substantial demand from commercial vehicle and electric grid applications, both of which are segments in which A123 has a leadership position. When also considering the longer term growth prospects for electrified transportation, we feel confident that investment in our industry will be rewarded, regardless of the source of that investment.

Some people believe that the emerging EV and PHEV markets could flatten out due to unproven technology. They reckon that the market will be initially bolstered by heavy subsidies to automakers, battery makers and consumers but that sustained growth will depend on yet-to-be-proven battery technology as well as on supporting government policies. Would you agree?

We can’t agree with characterising our lithium-ion technology as unproven. We entered production on our hybrid bus programme with BAE Systems more than two and a half years ago and have now logged more than 50 million miles of passenger service in municipalities around the country.

It’s true that some planned applications of lithium-ion technology do not yet offer a clear economic payback without subsidies but there are some that do. Particularly in the commercial vehicle market, we find many fleet operators who know their duty cycle and range requirements very well. With less uncertainty on the battery’s usage, it’s possible to engineer a system to the application requirements and avoid excess costs. Additionally, commercial fleet operators generally have the investment capability to install a charging infrastructure where they need it.

Looking forward, we also have clear line of sight to a series of cost reduction opportunities in our products. As we realise these improvements, a greater variety of vehicle designs and usage patterns will offer positive economic paybacks. We are confident that these developments and those of our competitors will drive a long term sustainable market.

Finally, in July 2010, A123 Systems became the first major US battery manufacturer to earn TS 16949 certification for automotive design and manufacturing, validating that A123's product design and manufacturing processes meet the highest standards for excellence in the automotive industry. In order to obtain TS 16949 certification, a company must demonstrate that it complies with the TS 16949 quality management system and pass annual surveillance audits by an independent third-party.
 
I guess that the stubbornly high cost of battery packs – which can account for about half the cost of an electric vehicle – is a big hurdle. Presumably, the costs need to be reduced to below $400 a kilowatt hour to make it commercially attractive? Are battery packs likely to enjoy the traditional economies of scale as demand increases for electric cars? If the cost of battery packs can be significantly reduced, where will the cost reduction come from? i.e. efficient factory management, cutting waste and other management-related expenses or from fundamental improvements in battery technology?

A123 anticipates significant cost reductions in our products over the next several years and these will come from a combination of manufacturing efficiencies and technology advances. We believe that it will not be possible to remain competitive in our market by only relying on manufacturing scale to drive cost reduction. Our R&D portfolio benefits from numerous research partnerships and we anticipate that technology advances will contribute to steady cost improvements over time.

A variety of industry sources are projecting that industry-wide, battery cost could be cut in half over the next five years. By about 2015, industry analysts estimate that costs should be below $500/kWh, with some saying that costs will drop below $400/kWh. Unfortunately many cost analyses don’t state the underlying assumptions and therefore may not be comparable but we find these projections to be in a reasonable range based on what we know today.

Whichever way you look at it, EVs remain expensive and give motorists range anxiety with just 100 miles between charges. What needs to happen to EV batteries to improve this situation?

While we don’t want to minimise the issue of range anxiety, it is important to note that according to the US Dept of Transportation, roughly 80% of US drivers log 50 miles or less per day. There are of course periodic long range trips which an EV won’t support but it’s not reasonable to expect that an EV can replace every vehicle in the market. Rather, we expect that different segments of the automotive market will gravitate to different vehicle types over time. For example, households which have two vehicles may be well suited to enjoy the benefits of an EV in the vehicle predominantly used for work commuting.

It’s also important to have reasonable expectations for build out of a charging infrastructure. After a home charging location, the next most logical will likely become workplace charging and A123 is actively planning this for its own facilities. We look forward to other employers showing similar leadership as electrified vehicles become more accessible to the consumer.

Finally, part of our R&D portfolio is focused on improvements in energy density. Just as we expect cost improvements over time, there will also be gains in the amount of energy that a battery of the same weight and size can store. As these technological improvements come to market, it is not yet clear how each vehicle manufacturer will apply them. Some may chose to maintain the existing vehicle range with a small and lighter battery pack while others may opt for longer driving range.

As we see it, while extended-range EVs (EREVs) eliminate range anxiety, the costs of their range extenders will have to fall as fast as those of battery packs to keep then an attractive option. We suspect that over time, EREVs will migrate to higher segments, offering sporty and luxury models a way to provide zero emissions in city centres while maintaining peak performance at high speeds. Meanwhile, the low end is likely to migrate over time toward pure battery electric vehicles. How do you see the evolution of EREVs?

Similar to our views on the future of EVs, we anticipate that a meaningful segment of the market will be attracted to the EREV vehicle type based on its unique combination of performance attributes. At the same time, the market is too immature to accurately predict which vehicle classes are more likely to offer such powertrains. One challenge with an EREV is that the experienced fuel economy could vary significantly based on the proportion of miles driven in all-electric mode. For the market to develop a positive impression of EREV benefits, drivers will need to be educated on how their driving and charging behaviour affects their fuel economy. A critical success factor may become the quality of the in-vehicle display which gradually trains the driver to optimise battery performance.

NiMH batteries are said to be not an ideal energy-storage device for hybrid cars. Their limitations include moderate energy conversion efficiency, which translates to some energy loss and significant heat production in normal usage, reduced life with high depth-of-discharge cycling, and unsatisfactory performance at high and low temperatures. Given these limitations, how do you see its application for future hybrid and electric cars?

While the energy density of NiMH solutions precludes them from consideration in mass market electric vehicles, the performance is adequate for hybrids and NiMH currently enjoys a cost advantage over lithium-ion alternatives. As the cost of lithium-ion declines over time, we expect a corresponding share erosion for NiMH in hybrid applications.

While the lithium-ion batteries have their merits, if the plug-in battery vehicle contains a lithium-ion battery, which is to be given a full charge every night in a residential garage, is there not a more serious concern about hazardous failure than with the smaller batteries of conventional HEVs, which are always kept at an intermediate state of charge?
 
Generally speaking, lithium-ion batteries are safe for use in EVs, PHEVs and HEVs. Just how safe, though, depends in large part on the chemistry the battery uses. A123’s advanced Nanophosphate™ chemistry provides increased safety and extended life when compared to competing technologies. Because our cathode chemistry is a phosphate rather than an oxide formulation, it is more stable when subjected to a variety of abuse conditions and far less likely to participate in a catastrophic failure. As a result, A123 cells depend considerably less on the system design to provide a safe product engineered to last the life of the vehicle.