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By Joe Boomgaard | MiBiz
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DEARBORN—With more than $1.1 billion committed to advanced battery manufacturing plants in West Michigan alone, the opportunities for growth seem nothing short of electrifying.

But some experts are wondering: Is the entire industry overcharged?

That was some of the buzz among some analysts at the Center for Automotive Research’s Business of Plugging In conference in Dearborn earlier this month.

A panel of analysts forecast that the battery-powered vehicle market — battery-powered electric vehicles such as the Nissan Leaf or plug-in hybrid electric vehicles such as the Chevrolet Volt — will continue to expand over the next decade. The segment’s sales trajectory is all positive for the foreseeable future.

But there’s a catch.

“The red flag I’m seeing is overcapacity in electric vehicles, in batteries and in electrical components,” said Mike Omotoso, senior manager of global powertrain forecasting for JD Power and Associates. “The Department of Energy provided them with loans to get off the ground, but when you look at the production capacity versus the sales forecast, there is a lot more capacity than is warranted by the sales projections.”

A report by Bloomberg New Energy Finance found that automakers plan to produce 839,000 plug-in EVs worldwide by 2013, up from an estimated 124,000 in 2011. In contrast, the supply capacity under construction by battery makers is expected to reach 35GWh by 2013, enough to almost double the number of planned electric vehicles, according to Bloomberg.

If hybrid vehicles are any clue as to the future development of the EV market, then consider: In 10 years, hybrids have been able to secure only about 2 percent market share. Hybrids peaked in 2009 when the segment’s share was 2.8 percent.

Today, the Toyota Prius alone accounts for half of the hybrid market.

“If it took hybrids 10 years to get to 2 to 3 percent, we expect the electric vehicle share to be small for the first 10 years of sales,” Omotoso said.

JD Power forecasts just 96,000 pure battery electric vehicles, such as the Nissan Leaf, will be sold by 2017, representing 0.6 percent of the total light vehicles sales. With EVs and plug-in hybrids combined, Omotoso said he predicts cumulative sales of 750,000 units by 2015 — well short of the Obama administration’s 1 million electric vehicle goal set for the same year.

That’s also well short of the capacity that battery makers have available. A single plant owned by Johnson Controls Inc. — the Meadowbrook facility in Holland — will have enough capacity to produce 15 million lithium-ion cells, enough for about 450,000 vehicles a year, officials told MiBiz for a report earlier this year. LG Chem plans to produce enough cells in Holland to power around 200,000 vehicles, according to published reports.

While the battery makers are on track to meet their production targets, the automakers are producing mixed results when it comes to sales of electric vehicles. Nissan moved about 15,000 Leafs since December 2010 with about half of them being sold in the U.S. market. As the company moves into more markets throughout the year, it is on track to meet its goal of 20,000 units globally, said Mike Perry, director of product planning and strategy at Nissan Americas.

General Motors said it would deliver 10,000 units this year of its plug-in hybrid Chevrolet Volt, but the company reported it only managed to move 3,895 cars through the end of September.

“They seem to be very short of that target so far,” Omotoso said.

Interest in electric and plug-in vehicles remains high, but customers face a dilemma in the showrooms: Shell out $40,000 for the Volt, before incentives, or pay about $20,000 for a Chevrolet Cruze Eco, rated at 42 mpg on the highway.

Through September, GM sold more than 187,000 Cruzes — about 48 for every Volt.

Don’t ice the ICE

To meet stricter emissions standards, automakers will have to invest in technology to improve the performance of the internal combustion engine (ICE). The technologies include direct injection, variable valve timing, engine downsizing and boosting, start-stop systems, dual-clutch transmissions and more speeds for traditional gearboxes.

Despite the added cost for those technologies, automakers and customers will still get better returns for those investments in ICE technology because they remain cheaper than vehicle electrification, Omotoso said.

“The payback is two to four years,” he said. “For hybrids and electric vehicles, it’s five to 10 years — and in some cases more.”

The other limitation is infrastructure. While the U.S. has some 160,000 gas stations, there are currently only 2,300 public electric vehicle charging stations. Omotoso projects 23,000 charging stations will be installed by 2015.

“We do expect the market to grow over time, but slowly. The gas engine — it’s too early to write it off. We expect it to dominate for the next 20 years, but to a lesser extent,” he said.

Global growth spurt

Anthony Pratt, director of forecasting for the Americas for R.L. Polk & Co., predicted similar slow growth as automakers and suppliers continue to develop innovations to bring down the cost of the batteries. His global forecast was for electric vehicles and other plug-in hybrids to exceed 1 percent of the market by 2016. Looking farther out, he expects 40 million units to be sold by 2030 — with about 30 percent sold in China.

“The message here is not the number, but the trend. Much of the growth will take place in China, where they’re primed for growth,” Pratt said. “With one piece of legislation by the government of China, we could easily see EVs grow significantly.”

While robust federal and state incentives certainly helped spark the creation of the battery industry in the U.S. and in Michigan in particular, Pratt reminded the attendees that the automotive market is global and that the new battery companies could serve global demand.

“Many of the large suppliers’ headquarters are in places other than the U.S. The investment will be made whether the U.S. wants to participate or not,” Pratt said. “I agree we have too much capacity as it relates to battery capacity, but manufacturers are not naïve. It’s a short-term phenomenon. Automotive is not the only industry in which they compete.”

For example, fortu PowerCell, which plans to invest $623 million over two phases for a plant in Muskegon, said it plans to focus its strategy beyond just the automotive sector. The company has not commented on its production capacity, but said it would target its batteries for transportation and energy storage.

Estimates peg the stationary power industry — which would use batteries to store power produced by alternative energy sources — at potentially five to seven times the size of the auto market.

“I don’t think anyone knows for certain” how the battery industry will shake out, said Randy Thelen, president of Lakeshore Advantage. “Of all the capacity deployed in the last five years, JCI and LG Chem are in the top two or top three.”

Thelen said one potential strength for West Michigan battery manufacturers is the relative size of their parent companies — LG is about an $89 billion company; JCI is about a $35 billion company. Their size should allow them to be positioned to weather a period of overcapacity better than if they were small start ups, he said.

While the West Michigan plants are well-positioned, others in the industry may not be so lucky. A 2011 study by Roland Berger Strategy Consultants predicts five leading suppliers will control almost 80 percent of the market by 2015. The group predicted LG Chem will control 18 percent of the market, the second largest stake.

“I expect some companies to go out of business and others to be gobbled up,” said JD Power’s Omotoso. “It’s going to be the Wild West.”

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• mike omotoso