Earlier this week Clifton Yin and Matthew Stepp of The Information Technology & Innovation Foundation published an article entitled “Shifting Gears: Transcending Conventional Economic Doctrines to Develop Better Electric Vehicle Batteries”.  The article contains an excellent discussion of the need for the vehicle electrification and the advantages of electric vehicles relative to competing technologies.  It also contains an accurate and sobering analysis of the poor prospects for vehicle electrification in light of the current state of advanced battery technology.  The full article may be read by clicking here.

Yin and Stepp talk about how best to encourage the development of improved battery technology.  They discuss and discount what they call the neo-Keynesian approach (i.e., subsidies) and the neoclassical economics approach (i.e., using and manipulating market price signals, such as by imposing a carbon tax) as ways to promote more rapid progress in battery technology.  Instead, Yin and Stepp advocate what they call the emerging doctrine of innovation economics:  “facilitating innovative actions and support[ing] complex innovation systems with a variety of policy tools in order to move the economy in a strategic direction.”

Innovation economics is, of course, not a new idea.  It is the concept that led, among other things, to the creation of the ARPA-E program at the U.S. Department of Energy.  Basically, the idea is that new technologies need to be appropriately supported at every step of their development up through the value chain.  The original concept may be developed at a government-funded laboratory or university.  From there it moves to a government-funded incubator program, such as ARPA-E.  After graduating ARPA-E, it moves to another government program focused on more mature technologies, such as the grant programs administered by EERE.  And then perhaps on to a venture-backed company or a corporate R&D program before its final debut in the marketplace.  At each stage the technology is evaluated and the winners and losers vetted by those running the applicable stage of the process.   

The problem with innovation economics, however, is that it is entirely theoretical. No successful commercial product in the battery industry has ever been launched through such a process and, to my knowledge, there is no prospect of such a successful launch happening anytime soon.

For battery technology to develop to the point where mass adoption of PHEV’s and BEV’s will be possible, there must be a real, existing market for advanced batteries that will allow the technology to be market tested and to mature.  For the past several years the federal government has spent billions of dollars trying to develop such a market in the automobile industry.  The problem is: that may be the wrong industry.

While the ultimate goal of advanced battery technology may be to power light vehicles and to liberate them from their near total dependence on petroleum-based fuels, it is far from clear that the best path to that goal lies through developing batteries for the automotive market.  Automobiles are a poor platform for developing new technology.  Product development cycles in the automobile industry can stretch for more than a decade.  That is far too long for any company focused on developing new technology to survive without cash flow from a commercial product.  The bankruptcy courts are filling quickly with advanced battery companies that tried to survive the automotive product development cycle but failed.

That is not to disparage the technological expertise of automobile manufacturers.  The Chevy Volt, by way of example, is truly an engineering marvel.  But properly understood, it is not new technology.  The Volt is an intricately engineered package of mature, proven technologies.  In the case of the battery, the Volt uses technology that was developed over two decades in the consumer electronics industry.  That is why LG Chem, a South Korean company with years of experience in consumer electronics, has the contract to manufacture it.

The key to advancing battery technology, and to making sure that the United States is a center for battery manufacturing, is not to develop an elaborate, government-funded R&D infrastructure.  The key is to make sure that U.S. battery companies have a market for their products.  Equally important, that market must be one with a short product development cycle, where new technologies can be brought to market quickly and successful technology developers can be rewarded in the marketplace in sufficient time to produce a reasonable return on investment.

Such a market for advanced battery technology already exists.  It is called the consumer electronics or, in its more current iteration, mobile applications market.  Product development cycles in the mobile apps market typically run about three or four years, as opposed to ten to twelve in the automobile industry.  That means that three or four generations of new battery technology can be developed, vetted and market tested in the mobile apps industry for every one generation of new battery technology rolled out in the automotive industry.  Faster battery product development cycles match precisely to the enduring strength of American industry:  technology innovation.  Where American industry has struggled in the battery space is not in developing new technology; it has struggled in getting that new technology to market.

The difficulty of U.S. manufactures getting new battery technologies to market is explained by the fact that no major manufacturing of mobile apps devices takes place in the United States today.  (The manufacturing of military mobile apps is an exception, and potentially an important one as the line between military and civilian mobile apps devices becomes thinner by the day).  The consumer electronics/mobile apps business was effectively outsourced to Asia thirty years ago and U.S. battery companies have been shut out of its supply chain ever since.  If we want to make progress in advanced battery technology—and if we want battery-powered electric vehicles anytime soon--we need to bring the mobile apps device industry back to the United States.

The best and most effective thing that the federal government can do to promote vehicle electrification in the United States is to provide U.S.-based battery makers with a vibrant market that can quickly commercialize new battery products as they come out of the development pipeline.  The auto industry may not initially be the best market to do that.  But the mobile apps device industry may be.

The road to the electric vehicle will lead eventually to General Motors.  But in order to get there it may first need to detour through Apple, Google and HP.  Bringing manufacturing of mobile apps devices back to the United States would have advantages well beyond its positive impact on advanced battery technology and vehicle electrification.  The U.S. advanced battery industry would welcome a discussion about how best to make that happen.