It is becoming apparent to all of us that the U.S. automotive industry has reached a fundamental crossroad. The current realization of financial crisis among two of the top-three U.S. based producers is finally sinking in among U.S. consumers, and President Obama has taken a highly visible role in insuring that U.S. brands, as well as U.S. suppliers, can have yet another opportunity to compete on the world stage.
Another realization that has finally sunk in among senior industry leaders is that the future of this industry no longer lies with selling more and more gasoline-guzzling vehicles, but rather in alternative energy, hybrid, or electric powered vehicles. As the industry attempts to make this next critical transformation, one key tenet of the supply chain will become the most crucial.
There is an excellent article in April’s Fortune Magazine written by Paul Keegan (Recharging Detroit: The future of the U.S. car industry hinges on cutting-edge battery technology.) which is worthy of a deep read. Keegan makes the conclusion, well known by our supply chain community, that whoever controls the battery industry, which will make-up a considerable part of the future value-chain of automobiles, will also control major influence over the automobile industry itself. Whether consumers adopt hybrids or all-electrics, the common denominator will be innovative lithium-ion battery technology that can be produced in large volumes, with a lower cost. These are tough challenges, and the article rightfully points to the conclusion that it will be battery technology that will define the next era of the modern car company, and the intellectual property and high volume production capability may not necessarily be something to outsource from the resident country.
Keegan further notes in his article that the big U.S. carmakers have been reluctant to sign a major deal with promising American companies because they are not yet convinced that they will be around for the long-term. Ford Motor Company selected Saft Groupe of France for their technology and Johnson Controls for U.S. based high volume production. General Motors selected a division of Korea based LG Electronics, and a $200 million plant is being built in Michigan to initially supply LG Chem-Compact Power batteries for the new Chevrolet Volt.
Chrysler on the other hand selected U.S. based A123 Systems, which currently has high volume production capability in China and Korea, but is seeking government assistance to build a high volume production facility in Michigan. Interesting enough, A123 has also been designated as a technology supplier to Chinese automaker SAIC Motor Corp. and has been reported to be in talks with French automaker Renault SA.
It would seem to me that if U.S. governmental leaders and legislators are truly committed to both a viable alternative energy transformation plan, as well as a vibrant value-chain supporting the automotive and other alternative energy related industries, than two obvious priorities come into play. First, U.S. based battery producers need to step-up their efforts in developing innovative lithium-ion technology and production capability, including more U.S based value-chain components. Second, the U.S. government also needs to place more emphasis on encouraging a more vibrant battery supply network to serve multiple supply chain needs.
The race is on, and Warren Buffet has one bet on BYD Company of China. For the sake of the long-term viability of a U.S. based automotive industry, let’s hope that Buffet and the industry will also select to invest in a U.S. based supplier.