Capitalism, as the famous economist Joseph Schumpeter noted, is all about “creative destruction”. Firms come and go. Some survive. Some do not. So it’s unfortunate for America when critics of clean energy seek to politicize what the most ardent believers in free markets believe is a natural, ongoing part of a healthy economy. While it’s true that battery maker A123 is filing for bankruptcy, it’s also being acquired by Johnson Controls Inc. (JCI). It’s also true that of the 45 advanced vehicle manufacturing plants the federal DOE invested in supporting, more than 30 are already in operation, providing jobs to thousands of workers across America. Finally, it is also true that clean energy critics are rooting against America’s success, literally, while the majority of Americans are supportive of clean energy.
Let’s start with the facts about A123 Systems. Headquartered in Waltham, Massachusetts, A123 has been an innovative player in the growing market for lithium-ion batteries, as used in the plug-in hybrid Chevrolet Volt and recently-released and upcoming hybrid and plug-in hybrid versions of the Ford Fusion and C-Max, among a number of other vehicles. With generally improved performance and attributes compared to less sophisticated battery technologies such as lead-acid (as found under the hoods of conventional autos and trucks) and nickel metal hydride (or NiMH, as used in the current Toyota Prius hybrid family), Li-ion batteries are widely acknowledged as the key technology in the global race for advanced vehicle leadership.
Seeing the long-term game-changing potential of A123’s technology, in 2009 the Department of Energy (DOE) provided a $249.1 million grant to A123 that was matched dollar-for-dollar by private investment to build a manufacturing plant in Livonia, Michigan, of which the firm has used $132 million at this point. The grant was made as part of a $2 billion DOE grant program for 29 companies to build or retool 45 manufacturing facilities for advanced batteries, engines and drive trains for electric vehicles across 20 states. A123 had received a $6 million grant from the Bush Administration in 2007 to promote advanced battery manufacturing as well, showing the bipartisan appeal of developing a domestic clean energy economy that thrives with a robust backbone of high-value, high-technology manufacturing.
As I noted before, of those 45 manufacturing plants the DOE invested in supporting, more than 30 are already in operation, providing jobs to thousands of workers across America. Under the terms of the deal reached with Johnson Controls (JCI) A123’s two facilities outside of Detroit, which together employ 700 workers, will become part of JCI’s manufacturing operations, in addition to JCI’s existing lithium-ion facility in Holland, Michigan. Thus, A123’s plants will continue operating and employing Michiganders, and will remain on American soil for the foreseeable future, while A123’s advances in battery technology will be used by JCI to expand its battery portfolio and market share.
While A123’s bankruptcy is unfortunate, clean energy manufacturing has bipartisan support because the American public intuitively understands that government support is necessary to building a competitive clean energy economy. In a September NRDC Action Fund –sponsored survey of undecided voters across 8 swing states, 53% of Americans favor government incentives for clean energy investment versus 29% who do not, with a further 60% favoring a presidential candidate who supports increased fuel efficiency standards for vehicles, compared to 25% who do not. While some quarters may repeatedly attack the government’s support of companies like Johnson Controls and A123 Systems, as well as efforts to reduce the country’s dependence on foreign oil, they are clearly out of step with the broader American electorate.
But while critics attack clean energy for political gain, these actions are to the detriment of the auto industry. The worst example is the unfounded attacks in the House of Representatives on the Chevy Volt. Nevertheless, as I noted in a blog a few months ago, Ford has been heavily investing in boosting its internal capacity to innovate and manufacture advanced batteries, spending $135 million to create a “center of excellence” for electric vehicles in the Detroit area and both insourcing and onshoring battery production from a Mexican supplier to Michigan. Ford’s moves created 170 high-skill jobs in Motor City, but furthermore, they show the importance of regulatory certainty to long-term investment decisions by the automakers and their suppliers, like JCI, to invest in fuel efficiency technologies in response to the Obama Administration’s 54.5 mpg standards.
All of this to say that, while A123 Systems’ bankruptcy is a setback to the American advanced battery industry, it is a small setback in the long run, as workers’ jobs will be preserved for the near term, and A123’s technologies will be further developed by Johnson Controls to power current and future vehicles. I noted last year that, for the U.S. to remain competitive in the rapidly growing and maturing clean energy industry, government support for the technologies of the future is critical, and that fact remains as true as ever today.
While it is disappointing for any innovative firm to fail, particularly one that had obtained government financial support to expand its operations, ultimately we hope A123’s announcement today will be a small bump in the road toward America’s prosperous clean energy future; a clean energy future that is overwhelmingly supported by the American public.