Battery Makers Are In the Hot Seat

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The fires reported by General Motors (NYSE: GM  ) earlier this week were just the latest in a string of bad news for battery makers. It has also left battery manufacturers scrambling to reassure customers that their chemistry is safe.

Valence Technology (Nasdaq: VLNC  ) released a press release reiterating that its batteries were safe and GM and LG Chem are working hard to try to find the root cause.

Before we get too worked up about a battery fire a week after a crash test, I will point out that new technologies often have hiccups like this and since it doesn't appear to be immediately dangerous to drivers it shouldn't be a long-term problem. As a former research and development engineer who started an inadvertent fire or two, I have confidence they'll solve the problem.

But maybe, just maybe, the Chevy Volt fire will be good for A123 Systems (Nasdaq: AONE  ) . The Volt battery is made by LG Chem, a Korean company that won the contract over A123 when the company was in its infancy. If A123 can prove to have safer technology, this could help it win contracts in the future.

Pink slips at A123 Systems
For now, A123 has to deal with its own problems of slower-than-expected demand and mounting losses. That has forced the company to lay off 125 workers at its plant in Michigan. The company says the layoffs are temporary, but the way things are going right now, who knows if they'll ever come back.

This isn't the end of the world
The battery fire is bad news for everyone from A123 Systems to Tesla Motors (Nasdaq: TSLA  ) and Toyota (NYSE: TM  ) . As these companies try to overcome high costs and uneasy customers, every bad news story is bad for the industry. But I don't think this is what will determine the success or failure of electric cars. For that we have to look at consumer demand, which simply isn't strong for EVs right now. That's more important than a fire that will leave the headlines in a week or two.

Interested in reading more about A123 Systems? Click here to add it to My Watchlist to find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium does not own an electric vehicle and does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

Motley Fool newsletter services have recommended buying shares of General Motors and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (2)

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  • Report this Comment On November 30, 2011, at 3:59 PM, F2JP wrote:

    The Electric Vehicle batteries currently being used have far less Fire\Explosion Hazard Potential than Gasoline Tanks. There is significant historical data to support this. The author fails to note this.

    "For that we have to look at consumer demand, which simply isn't strong for EVs right now."

    Take a look at the demand profile for Internal Combustion Engine Powered Vehicles during the first decade of use.. How about showing a comparison chart???

    Shifting from Internal Combustion Engine Powered Vehicles to Electric Vehicles, as well as other technologies is a necessary evolution that is just beginning. It will not happen overnight. There are many considerations, such as Battery Technology, Charging Infrastructure, economic Issues, etc. that all have to come into play. The Good News is that this is actually happening! To announce that demand isn't there is both premature, and shallow at best.

    Nissan's Leaf has just barely hit the road, and Tesla's model S (Which has a range of 160, 230, and 300 miles per charge) is still about 6 months from release to the public. Tesla currently has over 6500 pre-orders for the Model S. How does that translate to lack of demand? Nissan's Leaf may have more demand if they had opted for longer range (maybe next year's model will provide that), but given current economic conditions, what Gas Powered vehicle is Beating it's demand estimates?

    EVs offer a far simpler design and maintenance profiles than Internal Combustion Engine Powered Vehicles. No more Water Pump, Muffler, Radiator, Transmission, Exhaust System Maintenance and Repairs!!! How KEWL Is That!!! We are so used to Instant Gratification that whenever something takes more than a blink of an eye, we think there is something wrong. Take a step back and look at all of the benefits that shifting away from Internal Combustion Engine Powered Vehicles, and Fossil Fuel Consumption will provide. EV adoption will take place, there are far too many reasons it has to, EVs are simply a better option for the future than Internal Combustion Engine Powered Vehicles. This is only the beginning of the EV evolutionary process, it's just too soon to gauge demand.

    How about educating consumers about the new benefits that will be available to them with EVs that they will never see with Internal Combustion Engine Powered Vehicles, rather than Crying Wolf?

    Humans are resistant to change, even good change. There are still people who are using Dial-Up to access the internet. What was the adoption rate for Broadband in the first two years?

    Once there are a few good EV examples to evaluate, be prepared to see the tides change.

  • Report this Comment On December 01, 2011, at 6:01 AM, bikesncats wrote:

    Hi F2JP, you are absolutely right in stating that the the world needs to switch to cleaner technologies. You may be right that electric vehicles are in theyr infancy...or is that so? I drove an electric Ford Scorpio over 25 years ago, and it ran absolutely great.

    What is in its infancy is not the electric car, though technology is making these lighter and improving efficiency with the use of more powerful magnets, Halbach arrays and Litz wires, the real stumbling block is still the battery. Lets face it, even new batteries have nowhere the energy density any of the fuels in use today addition the refueling (recharging) is simply too slow.

    True people will get used to it and adapt, especially as oil will reach new highs, which raises one important question, if just 25% of all traffic in the US would switch to EV tomorrow...where would you get the necessary electricity from?

    Don't get me wrong, I've been an advocate for clean energy for most of the past 3 decades and I worked in R&D most of my career to improve internal combustion engine and gas turbine efficiency as an intermediate step, cleaner fuels as well as electric vehicles. BUT, I am also a motorcyclist, avid at that, I crossed every desert on the planet with the esxception of the Australian deserts (which are on my list next year (and the gobi in which I have little interest), I did pretty much every remote route in Northern Canada and much I'd love to tell you EVs are great, I would never had the chance to follow my hobby would we not have internal combustion engines and high density liquid fuels.

    In my opinion there is nothing that compares to that awsome roar that comes alive when you push that start button, besides, the way most car drivers behave on the road we need to be loud, would bikes be electric we would have a big rise in accidents because people only look when they hear the noice.

    Lets face it, the author is right, the demand is just not there yet...and as far as I am concerned you environmentalists woke up a couple decades too late, the damage is done, lets add to it and get that ice age coming so mother nature can rebalance things. Nonetheless, my newest engine is a 2 stroke running on pure hydrogen (when available) and/or CNG, at 200+HP I go through fuel like there's no tomorrow, luckily fuel is plenty and after a few minutes I'm ready to twist the throttle again.

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