Well here’s a depressing story – a local lithium-ion battery startup, Boston Power, has recently been bought out by Chinese investors and the Chinese government, and will be moving most of its R&D operations to Beijing.  The American execs are being replaced by Chinese ones, and even the founder will only be staying on for a year.  1/3 of the local staff of 90 will be laid off.  They had tried to get $100M from the US Dept of Energy to build a factory in western Massachusetts, but failed.  A lot of venture capital has already gone into them, $192M, but they needed more to scale up production.  Their original US investors appear to be long gone, although their current investors chipped into this $125M round.  They already have a factory in Shenzhen, and this acquisition will move most of the technology to an office in Beijing.  They may actually keep the Boston name – maybe it has some cachet – but probably not.  So much for the neoliberal idea that the US will be the high-margin innovator and China the low-margin manufacturer.

Andy Grove, the former CEO of Intel, worried about exactly this in this widely-discussed Business Week article “How America Can Create Jobs”.  He sees lots of innovation coming out of Silicon Valley, but little of it scales up to big volume, as Intel did in the 70s.   They falter exactly when they need to shift over into manufacturing.  The founders might score if there’s an acquisition or an IPO, but they don’t make it into the big time.  They don’t have the manufacturing experience just when they need it.

Boston Power looks like one of his examples.  The company was founded in 2005 by  Christina Lampe-Onnerud.  There’s a profile of her in a 2008 issue of IEEE Spectrum here, and she was interviewed on the Boston radio station WBUR here.  She started the firm after doing battery consulting for 10 years at Arthur D. Little.   She got a doctorate in materials science in 1995 in Sweden, and did some post-doctoral work at MIT.  She’s Swedish, 43, and has young children.  Her husband is CTO, which is a big red flag to investors, and might have been part of the problem.   They’re both still with the company while the other execs are gone.

Their angle on batteries was to improve safety and durability.  Li-ion batteries tend to leak more as they get warmer, which warms them up more, which makes them leak more, and soon they catch fire.   They also tend to build up lithium metal on the electrodes and so lose capacity.  After a couple of years and a few hundred cycles of charge, their capacity is way down.  That’s not so bad in a phone, where it’ll be thrown away by then, but terrible in a car.  Boston Power combined a lot of incremental improvements in the cell geometry, the configuration, the electrode chemistry, and the battery management system to get a better overall system.  They’re now shipping in ASUS and HP laptops, and got into Saab’s electric vehicle program.

That’s too bad, since Saab is not now and never was going to be an EV leader.  They should have been in a US car maker, but they didn’t have batteries ready until 2008, and that was already too late.  The DoE awarded its funds in 2009, during the one big flush of stimulus spending, and they just weren’t in position at that point.    After that the window of opportunity closed, when Obama himself pivoted towards deficit reduction.   Republican obstructionism now makes any such investments impossible.   They don’t even want to fund teachers and firefighters, much less startups that might threaten their fossil fuel patrons.  They savaged Obama over the failure of Solyndra, and are now going after quite reasonable companies like SunPower.

So the US government is paralyzed, and US investors seem uninterested in firms that actually make things.  Why bother when dot-coms, finance, and defense are so profitable?  That’s pretty bad news, but it gets worse – not only are the Chinese actively pursuing a technology that we’re dropping, but they’re going to be the actual market for it.   They have no oil and they have lethal pollution levels, so electric vehicles make all kinds of sense for them.    EVs can be cheaper than gas cars, once the battery cost comes down.   They’ve also cornered the supply of rare earth metals needed for the magnets in the EV’s motors.  They’ll build up their domestic market and then sell the cars everywhere.

They’re clearly maneuvering  to dominate the future world car market.  It’s as if they’re planning beyond the next election cycle and the next quarterly statement.    These communists just don’t play fair!

It could be that this is what scared US investors off – they thought that China was going to dominate the field anyway, and that US attempts to compete were doomed.  It could also be that this battery approach isn’t competitive with others, or that this group of execs couldn’t make it work, or any of the other usual reasons why startups fail.    It’s obviously an important technology, though, and it’s actually shipping.  Lampe-Onnerud may be happy that her ideas are going to have an impact, but the US tech community should be worried.