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Stealthy Khosla-backed battery startup driving economic makeover?

By Emma Ritch
April 27, 2009

Michigan targets lithium ion battery makers for tax incentives to help create next-generation automobile stronghold.

Michigan has been the state hardest hit by the downturn in the U.S. auto industry, losing two-thirds of its auto-related jobs since 1999.

But the state government is trying to turn the crisis into an opportunity by attracting some of the hottest battery technology startups to build manufacturing plants close to those of the Big Three automakers.

"If you look at where batteries are made and where cars are made, there's a gap," said Ann Marie Sastry, CEO of stealth battery startup Sakti3 and a mechanical engineering professor at the University of Michigan. "There are zero lithium ion batteries being produced for electric vehicles [in the United States]. Eighty percent of the R&D for the U.S. auto industry is located in the Detroit area. It's a huge risk not to attempt to co-locate these industries."

Battery makers have asked for government funds to jump start the industry so it can better compete with Asian factories (see US car battery companies seek $1B in federal aid). The U.S. government has responded by allocating $2 billion for battery technologies in the U.S. stimulus package (see Germany, U.S., Australia inject stimulus spending into cleantech).

Michigan is trying to attract some of those stimulus funds by offering up money of its own. Gov. Jennifer Granholm last week announced $544 million in tax incentives to four advanced battery makers expected to spend $1.7 billion to build their factories in the state (see Cleantech calls on Uncle Sam this week).

LG Chem will receive $125.2 million in incentives toward the $200 million facility to supply lithium ion batteries for General Motors' Chevrolet Volt plug-in hybrid, while a joint project of Johnson Controls and Saft has received a promise of $148.5 million toward their $220 million plant to build batteries for Ford Motor. A123 Systems was granted $125.2 million in tax credits for the $600 million factory in Livonia, Mich., expected to produce lithium ion batteries for Chrysler. And the KD Advanced Battery Group, a consortium of Dow Chemical, Kokam America and Townsend Ventures, was offered $144.6 million to build a $665 million lithium-ion battery plant in Michigan.

Early-stage battery developers are also attracting funds. Last year, the Michigan Economic Development Corporation promised a $2.3 million tax break over 10 years to Sakti3 to build its manufacturing facility in Ann Arbor.

Sakti3 isn't revealing what makes its advanced lithium ion technology unique, but Sastry told the Cleantech Group that the company is trying to reduce the mass of materials within the battery. Carbon serves as a conductor within first-generation lithium ion batteries, but carbons add significant amounts of mass and degrade over time, she said.

"The trick is to find a good cathode material: add something that can be conductive and design it so you don't add a lot of mass," Sastry said. "That's the problem we're working on."

Sakti3 has attracted the attention of legendary cleantech investor Khosla Ventures, which has put $2 million into the stealth company. Other Khosla investments in the vehicle sector include cellulosic biofuel makers Coskata, Range Fuels, and Verenium; Detroit-based efficient diesel engines developer EcoMotors; Camarillo, Calif.-based fuel injection developer Transonic Combustion; and Berkeley, Calif.-based battery maker Seeo (see Khosla-backed Coskata, EcoMotors come out of stealth).

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