A123: Providing advanced solutions for the development of electric vehicles in China

Mr. Jason Forcier, President of A123 Systems Automotive Applications Group

Interview with Jason Forcier, President of A123 Systems Automotive Applications Group

Gasgoo: Thank you for accepting our interview. We all know that A123 Systems is an advanced battery supplier for electric vehicles and plug-in hybrid vehicles. Please briefly introduce your company, such as the development history, core technology development status, market sales growth and your company's customer situation.

Mr. Forcier: A123 Systems was founded in 2001 based on the breakthrough lithium-ion battery technology invented by Professor Ye-Ming Chiang at MIT. Based on this technology, we developed Nanophosphate™ as the main chemistry for our batteries. The advantages of Nanophosphate™ include high power, high safety and long life, which make our batteries very suitable for transportation and the markets we are pursuing.

A123's first commercial product using Nanophosphate™ technology was a power tool battery for Black & Decker's DeWalt brand. To support this work, we opened our first factory in China in 2004. With the successful launch of A123's power tool products, the company established the Automotive Applications Group and began to enter the field of new energy vehicle applications. This requires more advanced battery technology to meet the needs of new electric vehicles. As the current technology matures and more car users are interested, A123 is in great need of expanding its production capacity to meet the growing demand.

Led by its breakthrough technology and talented team, the company continues to expand its business around the world and has become a global leader in lithium-ion battery R&D, manufacturing and system design. In 2009, A123 went public and became one of the most successful public companies of the year.

Today, we have more than 2,200 employees and operate in three core markets around the world: transportation (including passenger cars, heavy trucks and buses), power grids (frequency regulation, renewable energy integration) and commercial or industrial products. Currently, we believe that we are the world leader in lithium-ion battery technology for grid energy storage and its application in the heavy truck and passenger car markets.

Gasgoo.com: According to your introduction, the company was founded in 2001. In fact, the company's history is not very long, but it has advanced technology. Can you tell us more about the advanced technology? In fact, LG Electronics and Johnson Controls are also engaged in batteries. What are the advantages of A123 in this field?

Mr. Forcier: The advantage of our battery system is that we use a different chemistry than our competitors. Some battery companies use a chemistry called metal oxide, but we use something called Nanophosphate™. The advantages of this material can be summed up in three words: high power, safety and long life.

High power, nano-sized particles can handle very high power because the lithium doesn't have to travel a long distance to fill the particle, so this allows our battery to charge and discharge quickly. Regarding the second point, safety, Nanophosphate™ is a very stable chemistry, so it is more resistant to overcharging or battery overheating. Metal oxide anode materials release oxygen under high pressure or high temperature. On the other hand, the chemical bond between phosphorus and oxygen in Nanophosphate™ is much less likely to be broken, which makes our material safer. Regarding long life, our technology has excellent cycle life and calendar life, while having the ability to maintain its high power for a long time.

Our advantages in high power, safety and long life can also be converted into higher available energy. This means that the energy of the battery can be used as much as possible in actual operation. In some technologies, battery manufacturers or customers only allow shallower charge/generation depths in order to protect the battery. As a result, they only allow 70% battery charge/generation depths instead of 100% full cycle. This is done to extend the battery life and ensure that the battery has enough energy to meet the needs of the battery under different vehicle conditions. Protect the battery when it is in a low power state, and avoid exposing the battery to a high power state due to improper operation, which may shorten the battery life or even cause safety problems. Most EV and PHEV batteries only allow you to use 70% of the stored energy, while our batteries allow you to use 100% of the stored energy.

We are also unique in the battery industry because we make our own cathode powder. There are usually four main steps in making batteries: producing powder, electrode coating, manufacturing individual cells, and the entire battery system (ultimately an integrated automotive solution). A123 does all four of these steps in-house, while many of our competitors buy powder from the market and only do their own coating. A123 produces its own powder because we have good patents, and we have our own intellectual property and manufacturing process for the material. This helps ensure quality and allows us to offer our customers a different product that our competitors do not have.

Gasgoo.com: China is currently vigorously developing the electric vehicle market. A123 has established a joint venture with SAIC Motor to form Shanghai Jiexin Power Battery System Co., Ltd. (ATBS). What is the main role of this joint venture? What is your development strategy in China in the next three to five years?

Mr. Forcier: We are very excited to participate in the growing Chinese market. China is the world's largest and fastest growing automotive market, and we see huge opportunities there, and we also believe it has the potential to become the world's largest electric vehicle market. A123 is currently the largest non-Chinese automotive lithium-ion battery manufacturer in China, which also establishes our leading position. We have nearly 1,000 employees in Changzhou, where we have several production plants, manufacturing powders, coating, producing batteries and assembling complete systems.

Part of our strategy in China is our joint venture (ATBS) with SAIC to develop advanced battery systems (using A123 cells) for Chinese OEMs. While we have only announced our relationship with SAIC, we have a strong relationship with other Chinese OEMs through other channels. Our vision for the future is to continue to expand our presence in China and add the necessary resources to meet domestic supply needs. The Chinese government has implemented many very market-friendly policies and encouraged the development of electric vehicles. It is clear that both the government and private sector will go further in the development and use of electric vehicles. SAIC is a great partner and we look forward to our partnership developing further, allowing us to increase and profit from synergies between our two companies.

Gasgoo.com: A123 is full of confidence in China's new energy market, while your competitors are still waiting and watching. They are still at the stage of figuring out how to invest or find partners, but A123 has already taken action in China, right?

Mr. Forcier: As I mentioned earlier, we believe that China will become one of the largest markets for electric vehicles in the world, so we believe it is very important to establish our leadership in the market through strategic partnerships and other means. We have no hesitation or wait-and-see attitude towards the Chinese market, because our goal is to become one of the leaders in the Chinese market.

Gasgoo.com: Your company has made full preparations in this regard. You mentioned that A123 provides battery solutions for global automakers, and now it supplies battery products to SAIC and other Chinese automakers. Can you provide more details about the technical services in cooperation with these Chinese automakers?

Mr. Forcier: A123 has a global customer base and cooperates with many automakers in Europe, the United States and Asia. Currently, we have signed contracts with Fisker Automotive, SAIC, BAE Systems, Eaton and Navistar. We have also signed cooperation agreements with General Motors, Daimler and other automakers whose names are not mentioned for confidentiality reasons. Therefore, we have a very broad customer base in major global automotive markets and are constantly expanding our market coverage around the world. In the Chinese market, in addition to cooperating with SAIC, we have also signed cooperation agreements with several other Chinese automakers on projects such as sedans, heavy trucks and buses. The company is confident that these projects will receive full production contracts in the future.

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From a service perspective, A123 is transferring its battery system and assembly expertise to ATBS. The company will grant the patented technology of the entire system to the joint venture, hoping to meet the expectations of Chinese customers. Our goal is to eventually make ATBS an independent company that designs and develops the entire system. ATBS will purchase battery cells from A123, but will develop and produce cooling, accessories, packaging and other electronic systems on its own. In the future, ATBS will be able to manufacture battery packs and complete battery systems. The company plans to continue to work closely with ATBS to ensure a smooth technology transfer and ensure that the joint venture keeps up with the latest developments in battery technology.

Gasgoo.com: So your company places the Chinese market in an important position globally and has formulated a long-term development plan for the Chinese market. Can you introduce ATBS's localization process in China? Especially the localization work in R&D and customer service?

Mr. Forcier: ATBS was founded with only a few employees, and in the near future, it is expected to expand to about 50 employees. As I mentioned earlier, the company has transferred some technical experts to the ATBS laboratory and will implement the system manufacturing strategy. Ultimately, the joint venture will have both engineering development and battery system assembly and manufacturing capabilities.

In the next one or two years, we expect to increase our manufacturing capacity and move to full-scale battery system assembly and manufacturing. The company will make additional investments in the necessary resources to implement our plan, including the establishment of production capacity, testing capabilities and engineering laboratories.

As for the sales strategy for entering the Chinese market, the company will continue to support ATBS and work with ATBS to deal with cooperation with Chinese vehicle manufacturers. From a sales perspective, ATBS is in a dominant position. Currently, the company exports A123 employees to ATBS to support its work, and the company will continue this route as needed in the future. Once ATBS matures from the perspective of battery system assembly production, all business in the Chinese market will be handled independently by ATBS.

Gasgoo.com: It seems that your company is still continuing localization.

Mr. Forcier: That's right. As I mentioned, we are exporting technology and expertise to ensure that ATBS has all the capabilities necessary to succeed. As the Chinese automotive market continues to grow, especially in the electric vehicle sector, we believe it is important to be present locally to provide service support to our customers. This is similar to our approach in the United States - in September 2010, we opened a manufacturing plant in Livonia, Michigan, which is the largest lithium-ion battery production plant in North America. The main reason for choosing this region is its proximity to the U.S. automotive industry base and its rich talent pool.

Gasgoo.com: It can be understood that your company is currently mainly engaged in technology transfer in China, and may develop new technologies for the Chinese market in the future.

Mr. Forcier: The company hopes that ATBS will continue to innovate and develop next-generation technologies and systems in the Chinese market. Our goal is to provide ATBS with a strong technical foundation so that it can develop various systems that meet the current needs of the Chinese automotive market.

Gasgoo.com: Could you please introduce the new technologies or products that will be launched in China soon? They will help Chinese automakers produce new cars that are safer, more energy-efficient and more environmentally friendly.

Mr. Forcier: A123 has always been good at commercializing new technologies, bringing innovative breakthroughs from the laboratory to the outside world, and developing affordable solutions to meet current market needs. Therefore, one of the company's tasks is to continue research and development to find new technologies, new materials, new processes and other factors that can improve the performance of the company's products. We believe that A123 will continue to lead the way in the forefront of new energy storage technologies.

Gasgoo.com: What innovative measures will your company take to reduce costs and set prices to satisfy Chinese customers?

Mr. Forcier: Our products are currently cost competitive, with superior performance, long life and good safety performance. We expect to significantly reduce product costs in the next few years, mainly through a combination of manufacturing efficiency and process improvements. We believe that we cannot remain competitive in the market by simply relying on production scale to reduce costs. Our R&D strength is largely due to our research partners, and it is foreseeable that future technological advances will continue to drive costs down steadily over time.

Many industry insiders predict that the cost of batteries in the industry will be reduced by half in the next five years. However, many cost analyses do not provide assumptions and are therefore not comparable. However, from what we know now, these predictions are still within a reasonable range.

Specifically in China, we invested a lot of local resources (such as setting up a procurement office in ATBS) to develop more local Chinese suppliers to reduce costs. We also received a lot of help from SAIC in finding local suppliers.

Gasgoo.com: You mentioned setting up a procurement office in China as part of the localization strategy to reduce costs. You also mentioned supply chain issues. Do you mean that some battery components will be purchased in China?

Mr. Forcier: Yes, this is what we are working on now. The company already has some suppliers in China, from which we purchase parts for assembly production in the U.S. We hope to expand further, so we are working with ATBS and the Shanghai Procurement Office to find more suppliers in China.

Gasgoo.com: This is very important for your company's localization.

Mr. Forcier: Indeed, this will help the company on a global scale, because it not only reduces the product costs of the Chinese branch, but also helps A123 branches in other regions purchase low-cost components from the Chinese market.

Gasgoo.com: As the world's leading supplier of lithium-ion rechargeable batteries, what do you think about battery charging solutions and future recycling systems?

Mr. Forcier: Let’s look at the second question first: battery recycling. A123 is a leader in the grid energy storage and heavy-duty truck and bus battery markets, which are related in terms of reusable batteries. When the vehicle reaches the end of its life, there is undoubtedly a huge business opportunity to continue to use the battery for other purposes such as the grid (which can be called "secondary use"). This has many benefits, including reducing costs (first-use and secondary use customers share the full life cycle costs). The company attaches great importance to the opportunities brought by the secondary use of batteries and is currently working to bring this spiritual initiative to the entire market.

We also attach great importance to battery recycling. 95% of the components of A123's battery products are recyclable, including the lithium, plastic and metal materials used in the battery. Our battery products are made of harmless materials and can be returned to the factory for reuse to reduce costs.

Gasgoo.com: Regarding the issue of charging, what is your company's opinion on charging stations and related charging standards?

Mr. Forcier: Today's grid infrastructure is capable of supporting home charging for a large number of electric vehicles, especially at night when baseload power is sufficient. If a user plugs the vehicle into the grid to charge overnight, the vehicle will have enough energy to meet normal driving needs during the day the next day. The vast majority of electric vehicles and plug-in hybrid vehicles have on-board hardware that can adapt to home charging interfaces. The common 220V, 50Hz power supply in China is different from the European and American standard power supply, but it is not a problem for electric vehicle charging. The electric vehicle industry can adapt to 110-240V power charging requirements according to the SAE J1772 standard. Fast charging protocols are also currently under development, and Japan, Germany and some other charging connectors and standards are under consideration. A123 will provide battery products according to the charging protocols and standards required by customers.

Fast charging will bring a higher burden to the charger and battery. If the charging speed is too fast, it will shorten the battery life under certain technical conditions. Compared with other lithium-ion batteries, A123's Nanophosphate™ technology can better meet the needs of fast charging. In addition, if the operation is not careful enough, it will be difficult for the power grid to achieve fast charging. A123's experience in grid energy storage technology gives it an advantage over other battery companies with less experience in grid development. At the same time, A123 also works closely with government policy makers, the power industry, the automotive industry, etc. to provide the best solutions for all stakeholders.

Outdoor charging stations also play a very important role, especially for users whose vehicles travel more mileage than the battery can practically reach. In the future, companies will install charging devices for their employees, which will also bring new business. At the same time, we can also see that state-owned charging stations in many parts of China are recruiting employees. Eventually, battery technology will improve significantly (vehicle range will increase) and charging infrastructure will be in place. After switching to driving an electric car, the driver's experience will change minimally, almost the same as driving a regular car now.