How the U.S. let EV battery tech born here wind up in the hands of China

On a 3-mile stretch of farmland in southwest Michigan, Ford Motor Co. is building a battery factory. The technology Ford needs to make cheap, stable batteries to power electric vehicles will come from China’s Contemporary Amperex Technology Co. Ltd., better known as CATL, the world’s biggest battery manufacturer. By most measures, Ford’s deal with the Chinese giant is a coup for the state — it’s getting a $3.5 billion investment in a 2.5-million-square-foot factory, thousands of new jobs and the ability to produce enough batteries annually to power 400,000 electric vehicles when the plant opens in 2026. But for anyone who’s been paying attention, it’s a devastating moment of irony for the U.S.: The deal could have been the other way around.

In the mid-1990s, a compound called lithium iron phosphate (LFP), the primary battery chemistry now used by CATL and most battery companies in China, was discovered by scientists at the University of Texas at Austin and commercialized a few years later by the startup A123 Systems LLC in Watertown, Massachusetts. In 2009, A123 was awarded hundreds of millions of dollars by the Obama administration with the great hope that it would help kick-start production of electric cars in the U.S.. But it was too early. There wasn’t demand for EVs, and car companies making vehicles that use less gas didn’t want to risk relying on an unproven startup.

By 2012, A123 had filed for bankruptcy and become a symbol of government waste often mentioned in the same breath as Solyndra, the California solar-panel maker that filed for bankruptcy in 2011 after receiving a half-billion dollars in federal loan guarantees. To this day, Dave Vieau, A123’s former chief executive officer, is dogged by occasional finger-wagging when people learn he ran the company. “You’re the A123 guy who stole all the government money” is a line he’s gotten more than once.

Now, almost 30 years after the discovery of LFP, the U.S. is scrambling to build its own battery supply chain, and the pioneer of the modern assembly line is turning to China to learn how to make the car of the 21st century. It’s an unsubtle reminder that America learned the wrong lesson from A123. Rather than letting a potentially breakthrough technology, or a young company trying to commercialize that technology, live or die by the whims of the free market, the U.S. could have been committed to a much longer game. And rather than allowing a battery discovery to slip through its fingers and into the hands of what’s now its greatest economic and geopolitical rival, the U.S. could have figured out how to nurture and protect a nascent industry that was inevitably going to encounter trial and error. With the wisdom of hindsight, A123 is a case for tweaking the orthodox rules of American capitalism in the age of competition with China.

'China has just marched ahead'

In 2013, China’s then-biggest auto parts company purchased A123 out of bankruptcy. That year the Chinese government also began implementing its plan to build a domestic EV market at a breathtaking pace. A decade later, China accounts for 58% of the world’s EV sales and 83% of all lithium-ion battery manufacturing, according to BloombergNEF. Even if all of President Joe Biden’s climate policies succeed in reviving American manufacturing, the U.S. is now at least a decade behind China when it comes to battery manufacturing, in terms of both the necessary technology and the capacity, industry experts say. “China has just marched ahead with a very consistent strategy over the past 20 years,” says Brian Engle, president-elect of NaatBatt International, a trade association that advocates for battery development in North America. “We create all kinds of really cool technology, and then we abandon it.”

Soon after A123’s collapse, some of its engineers answered the call of China’s young and booming battery industry. One eventually became the billionaire chairman of a Chinese maker of carbon materials. A few of A123’s former executives still wonder what would have happened if, at the time, the U.S. had found a way to keep the company going — a government supply contract or even a sale to another American business. Given time and support, could A123 have eventually become a billion-dollar American battery behemoth, the linchpin in a homegrown battery supply chain?

“The U.S. has an industrial policy. Here’s the policy: We don’t have one,” says Jeff Chamberlain, who spent more than a decade at Argonne National Laboratory trying to commercialize battery tech before starting a venture capital firm in 2016. “I’m not saying we should become socialist or communist, but other countries that have decades-long industrial policies, they’re gonna eat our lunch.”

In early 2001, a 26-year-old entrepreneur named Ric Fulop started knocking on doors at the Massachusetts Institute of Technology, hoping to find someone to help him start a battery company. One of the people who answered was Yet-Ming Chiang, a professor of materials science, who invited his friend with a doctorate from Cornell University, Bart Riley, to meet with them regularly. They narrowed in on Chiang’s idea for a “self-assembling battery.” Batteries have three basic components: two electrodes — a cathode and an anode — that store and release a charge, and an electrolyte that helps shuttle the charge between them. The materials used to make batteries determine how much energy they store and at what cost. Chiang’s dream was to find three materials that would, under the right conditions, fall into the exact structure of a battery.

That summer they hatched A123, and soon raised $8 million, along with recruiting Vieau, an executive from a Rhode Island power equipment company, to be CEO. But six months in, the team realized that making the self-assembling battery a reality would take a long time. Meanwhile, Chiang’s lab was publishing science papers on LFP as a superior material, and he convinced Vieau that A123 could use it to pursue a commercial battery instead.

LFP was discovered by a team of researchers led by professor John Goodenough in 1995. Goodenough, who would win the Nobel Prize decades later, had given his lab researchers at UT Austin an assignment: Take a lithium-ion battery cell and swap out different metals to see if they can hold more energy without catching fire, as journalist Steve LeVine chronicles in his book "The Powerhouse," which profiles the pioneers of modern battery chemistry. Goodenough’s team chose an iron-and-phosphorous compound and made a test cell. When they charged it, the compound formed an atomic crystal structure that easily shuttled lithium ions back and forth. They had stumbled onto a new cathode material, one that would prove to be cheaper and more stable than existing technology.

Initially, LFP batteries were slow to charge and discharge. Scientists affiliated with a Canadian electric utility company solved that by coating LFP cathode particles with carbon, an innovation that could make the material commercially viable. Around the same time, A123’s Chiang published an article in the scientific journal Nature Materials, stating that “doping” an LFP cathode, or injecting tiny amounts of metallic compounds, including an element called niobium, helped electrons travel faster so the battery could produce even more instantaneous power. This discovery, which A123 would later brand “Nanophosphate,” became the company’s key innovation, enabling batteries to produce two or three times more immediate power than any other similarly sized cell on the market.

President Barack Obama awards the National Medal of Science to Dr. John Goodenough of the University of Texas, in 2013. (AP)

Industrial espionage

It didn’t take long for A123 to find applications for Nanophosphate. Within a few years, the startup secured a contract with Stanley Black & Decker Inc. to provide batteries for a new line of power tools and raised another $32 million. Staring down an 18-month deadline with limited cash, A123 decided to outsource to lower-cost countries. They hired a company in Taiwan to make electrodes and cells, later shifting the electrode work to Korea. China, racing to match the electronic manufacturing prowess of its neighbors, was also eager to accommodate the U.S. startup. A123 built its cathode plant in a low-tax economic processing zone outside Shanghai, set up by the Chinese government to help foreign companies lower production costs while creating local jobs.

Despite the financial perks, intellectual property theft was a constant concern. A123 executives visiting from the U.S. would return to their hotel rooms to find screws loose on their laptops. A staffer at A123’s offices in Changzhou found an envelope in the outgoing mail basket addressed to a competitor. They opened it to find blueprints of the cathode operation, along with the résumé of an A123 production engineer, who was promptly fired.

To protect A123’s proprietary LFP cathode powder, the factory was divided into two buildings with limited access so no single Chinese employee could see the entire process. Larry Beck, a chemistry professor at the University of Michigan who became A123’s lead cathode materials scientist, rented a building behind a scrap metal yard and turned it into a low-profile chemistry lab, plucking iron from the heaps of sheetmetal and dissolving it in acid to produce purified crystals needed to make LFP.

As the Chinese government nurtured a domestic EV industry by converting city bus fleets and offering tax breaks for EV purchases, local entrepreneurs emerged to capitalize on state support. Zeng Yuqun, now the 41st richest person in the world according to the Bloomberg Billionaires Index, founded CATL in 2011 while running a company that made batteries for consumer electronics. CATL cut its automotive teeth producing cells for BMW AG and its local Chinese partner and would later recruit engineers from the West to sharpen its manufacturing skills. “My job as an older guy was to apply experiential learning so they could learn faster,” says Bob Galyen, an American battery engineer Zeng hired in 2012 who later became CATL’s chief technology officer.

CATL wasn’t the only juggernaut to emerge from China’s EV push. BYD Co., which is already outselling Tesla Inc. with its combined EV and hybrid models, also started out making batteries for cellphones. Its founder, a chemist named Wang Chuanfu, bought a car company in 2003. Five years later, at the Beijing auto show, BYD introduced the E6, an EV with an LFP battery that could go 186 miles on a single charge. Today, its Han sedan, with its own BYD-made battery, can go 410 miles.

President Bush listens to Dave Vieau, president and chief executive officer of A123 Systems, as he is shown a plug-in hybrid vehicle utilizing a lithium power battery on the South Lawn of the White House in 2007. (Tribune News Service via Getty Images)

A123 and automotive

As Chinese entrepreneurs built companies that would turn the Communist Party’s EV dreams into reality, executives at A123 were riding their own wave of electric euphoria. The performance of the A123-powered Black & Decker drill had attracted other potential customers. Gillette Co. wanted to put A123’s batteries in electric razors. Mattel Inc. wanted them for high-end toys. But Fulop, then vice president of business development, knew that to take on Asian battery giants, A123 needed to move into cars. In January 2008 he called Mujeeb Ijaz, an engineer who was running Ford’s EV skunkworks in Dearborn, Michigan.

When Ijaz got the call from Fulop inviting him to lunch, the engineer was still reeling from the news from his bosses. A year earlier, Ford had unveiled his breakthrough: the Edge, a plug-in hybrid SUV that ran on hydrogen and battery power. Now, as the Big Three girded for a recession, he was told Ford was cutting off funding for his department.

Ijaz could get reassigned to another group within Ford — after all, he’d been with the company for 15 years. But he was intrigued by Fulop’s proposition; working on batteries was something he’d always seemed destined for. The son of Pakistani immigrants — a nuclear physicist and a solar panel entrepreneur—Ijaz was born and raised in Virginia, where his father was a professor at Virginia Tech and his mother graduated from the school with two doctorates. Dinner table conversation often revolved around the 1970s oil embargo and how energy access was at the root of global conflict. After participating in a General Motors-sponsored solar-car race as a college student, he was hooked.

Within a week of Fulop’s call, Ijaz was leading A123’s automotive business, and several members of his Ford team soon joined him. The startup already had deals to build prototypes for BMW and Daimler Truck AG, and it was competing against LG Chem Inc. to supply batteries for the Chevy Volt, GM’s new hybrid sedan. Chrysler had a new electric car division, and A123 was vying to become its supplier, too.

As the economy crumbled in late 2008, everything started to align for A123. Four months after President George W. Bush agreed to throw GM and Chrysler a lifeline, Chrysler executives announced they would build an EV lineup with A123 batteries. By June 2009 the federal government had taken ownership stakes in GM and Chrysler, and Obama sought to pump hundreds of billions of dollars of stimulus money into the economy. A123 won a piece: a $249 million grant from the U.S. Department of Energy to support construction of two manufacturing facilities in Michigan. That government backing, along with the Chrysler EV deal, helped propel A123’s $380 million initial public offering that September. The startup wasn’t profitable, but it was in promising talks with automakers in China, Europe and the U.S., and now had enough money to invest in high-volume battery production, giving it the chops to compete with global manufacturers.

Chrysler EV division concepts at the 2008 L.A. Auto Show. (Reuters)