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Battery firm’s plans unravel after stimulus funds denied

By Erin Ailworth
Globe Staff / August 23, 2009

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The building was leased, the press alerted, and the state had pledged millions in support. Boston-Power Inc., the high-tech battery maker in Westborough, was ready to accept a huge chunk of change from Washington to pay for a new factory in Auburn.

Then, on Aug. 5, the word came down. The company would not get the $100 million in federal stimulus money it hoped for. That funding, and more, went instead to a handful of rivals that included A123Systems Inc. of Watertown, which is building a plant in Michigan to make car batteries for Chrysler.

Now, as lawmakers and Boston-Power executives deal with the shutout, chief executive Christina Lampe-Onnerud said without a quick injection of cash, the company will build its new plant somewhere else - perhaps in Europe or Asia. “Our issue is that we need to expand production capacity now,’’ Lampe-Onnerud said.

Boston-Power has begun to manufacture for the automotive market and believed it was a strong candidate for some of the stimulus money - $2.4 billion doled out by the US Department of Energy, much of it specifically meant to boost next-generation car battery makers. The company has a plant in Taiwan that builds laptop batteries for Hewlett-Packard Co. and a new car battery called the Swing, both of which use lithium-ion technology, which is considered to be environmentally friendly. Lampe-Onnerud said the car battery is already being sold to several clients she declined to name. The company has no announced deal with any of the Big Three American auto companies: Ford, General Motors, or Chrysler.

Lampe-Onnerud said the 450,000-square-foot Auburn plant would create 600 jobs, establish manufacturing operations in the United States, and possibly help the company break into the domestic automotive market.

Without federal funding, the factory project “just can’t happen in the United States, and that’s the sad reality,’’ she said.

The stimulus money was meant to help revive the nation’s ailing automotive industry, a priority of the Obama administration. From a pool of more than 250 applicants, 48 projects received shares of the stimulus funding.

More than $1 billion in grants went to companies and institutions with projects in Michigan, the nation’s automotive heart, according to a list of award winners. That included the two largest awards: $249.1 million to A123Systems and $299.2 million to Johnson Controls Inc. of Milwaukee, for battery and related manufacturing facilities.

US Representative James P. McGovern, a Democrat whose district includes Westborough and Auburn, said he was “disappointed’’ when the company failed to get funding from the Department of Energy.

“There was buzz that the application was very, very strong,’’ he said. “People within the industry and at the DOE intimated that this was a really good company with good technology.’’

McGovern said federal energy officials indicated disappointed funding applicants would be eligible for a debriefing session, and he has asked for such a meeting to find out why Boston-Power was left out.

“I don’t want any company that has the potential to create jobs, especially manufacturing jobs, to leave Massachusetts,’’ McGovern said.

As far as the award given to A123Systems, “Basically, that was a grant for Michigan,’’ he said, adding that although the competition was described by energy officials as based on merit, “you have to wonder whether there was some political calculation to this.’’

“The government has a huge investment now in the domestic three’’ automakers, said John O’Dell, a senior editor at Edmunds.com. He added a case could be made “that the guys that got the money are the guys affiliated with, associated with, doing something that will benefit domestic automakers.’’

Stephanie Mueller, a spokeswoman for US Secretary of Energy Steven Chu, declined to discuss individual applications for stimulus funding, but did say grant recipients were chosen according to technical capability, commercial viability, management team qualifications, and ability to match the federal grant.

“Proposals were selected that would create jobs quickly and that would provide a down payment on a cleaner, safer, and more competitive automotive industry,’’ Mueller wrote in an e-mail to the Globe.

While Boston-Power is just now breaking into the automotive market, A123Systems is already there, O’Dell said. In April, A123Systems said it would be providing Chrysler with batteries for a new line of electric vehicles.

“There is a motivation to utilize companies that are based in the United States, and A123 is definitely that,’’ said Chrysler spokesman Nick Cappa.

GM spokesman Rob Peterson, whose company once considered A123Systems as the battery supplier for the Chevrolet Volt electric car, indicated that Boston-Power has yet to build its reputation within the auto industry. “We are familiar with A123, we have a relationship with A123,’’ he said. “Personally, I am not familiar with Boston-Power. . . . If you look at what the automotive demands are for any type of component, volume is important - meaning, your capability to build and deliver a high-volume, high-quality product.’’

Reputation and plans to build in Michigan formed a real advantage for A123, said Erich Merkle, president of Autoconomy.com, an automotive analytics and consulting firm in Grand Rapids, Mich.

“For the most part, if you look at the automotive supply chain, it really is pretty focused on the Midwest,’’ Merkle said.

A spokeswoman for A123Systems declined to comment, citing federal restrictions on making public statements while it prepares to sell stock to the public for the first time.

The failure to get funding was a major blow for Boston-Power, a young lithium-ion battery company that until now, has enjoyed unusual success. Late last year, even as the economy tumbled, Boston-Power struck the deal with Hewlett-Packard. Soon after, the company received $55 million from investors.

Since February, Boston-Power had a team of about a dozen employees and consultants chasing the Department of Energy stimulus money. The company leased an old Filene’s Basement distribution center in Auburn, where it planned to house its new factory. Lampe-Onnerud said she expected the plant to be operational within two years, and capable of producing 3 million battery cells a month. “We have customers,’’ she said.

The state had also committed $9 million in loans and other incentives for the project, contingent on the creation of jobs. Several factors persuaded officials that Boston-Power made a good bet, according to Ian Bowles, secretary of the state’s Executive Office of Energy and Environmental Affairs. “In terms of the company itself, it obviously has a major contract with Hewlett-Packard, a significant player in the computer world, and is backed by some of the top venture capital firms,’’ Bowles said.

Boston-Power could look toward the Department of Defense for funding, Lampe-Onnerud said. Failing that, she added, the Auburn plan could die.

“Right now, I think my focus is to make sure that we continue to grow the company,’’ Lampe-Onnerud said.

“Boston-Power is a recognized leader in its field and appears to have developed a promising battery technology,’’ wrote US Representative Edward J. Markey, the Malden Democrat who chairs the Select Committee on Energy Independence and Global Warming, in a statement to the Globe. “I hope that the company can play a role in our electric car future.’’

Erin Ailworth can be reached at eailworth@globe.com.