Wanxiang doesn’t share China battery makers’ “good enough” mentality says Ener1 exec

There are a lot of battery companies in China. According to a report by Fourin Inc, www.fourin.com a Japanese research company, as of December, 2010, China had 52 rechargeable battery makers. That number has likely grown.

Many of the batteries produced by those companies will likely not meet stringent quality standards.  A report by InterChina Consulting  www.interchinaconsulting.com in Beijing says Chinese battery makers are weak in production technology and process.  China has not invested in fundamental materials research, said InterChina, “For example, China’s best LiFePO4 materials attain a purity of 94%.” Ideally, the purity level would be less than one millionth. The process used by local suppliers can’t attain that level, said InterChina. Separator films are another weakness—China depends on imports, said the report.

Unfortunately, a lot of these companies may not even care that their quality is not top-notch. Why? The cha bu duo problem. Cha bu duo (literally “less no more”) means “good enough.” Something gets the job done, though it may not be the very best it could be. That attitude needs to end if China’s battery makers hope to be competitive in China, must less globally.

Here’s a good example of the cha bu duo mentality: About 7 years ago I in Wuhu, China visiting an Italian company that was a supplier to Chinese automaker Chery www.cheryinternational.com. I was chatting with the GM of the supplier, a Chinese man who had a PhD from an Italian university and who had worked for Fiat. He was extremely frustrated by the attitude of the Chery managers towards their product.  They accepted quality that was only so-so rather than striving for first-class, he said.

Let’s go to lunch, he said. We went to his car, a Chery model,  and he opened the trunk.  He looked at the exposed wiring for the trunk
light and the wide spaces between the trunk hood and the car body. “See, just good enough,” he said in Chinese. “Good enough is not okay!”

That mentality persists in China’s battery makers, according to Jeff Seidel, CFO of Ener1 Inc. www.ener1.com of New York. Ener1 just got approval from the Chinese government to form a battery joint venture with Wanxiang Electric Vehicle Co. www.wanxiang.com of Hangzhou, China. Ener1 owns 40% of the venture, which will be based in Hangzhou.

Seidel visited other battery makers in China.  There is a lot of ‘good enough’ thinking in China, he said. “I saw some rush jobs and they looked rushed,” Seidel told me. What Ener1 liked about Wanxiang, Seidel said, was it “brings to the table a better process and better integration.”  In other words, Wanxiang isn’t satisfied with good enough.

Seidel found many of China's battery makers accepted quality that was just "good enough," he said.

The joint venture’s battery cells will be produced at Wanxiang’s existing factory. I visited the factory earlier this year. It is very modern.  But, Seidel said one shortcoming was the battery pack assembly. “It was entirely manual,” he said.  “You might of seen (in the plant) guys with a socket wrench assembling packs.”

Ener1 uses a mechanical process for battery pack assembly, said Seidel. That allows for consistency and large volume production.
One thing that attracted Wanxiang to Ener1 was its pack assembly technology, he said.  “They are probably 2-3 years behind in terms
of their pack design and not as far in terms of their cell,” said Seidel.  “The integration of our pack design and their cell should give them a great leap forward in the China market.”

In fact, Wanxiang’s battery cell technology, while not world-class, was “not that far away,” said Seidel. To bring the JV up to speed quickly, Ener1’s Taison Tan, “a cell design guy” will be the JV’s chief technical officer. Wanxiang engineers are also coming to the U.S. to train, and half a dozen Ener1 engineers will work with the JV in China, he said. Wanxiang “would like 12 or 13” Ener1 engineers, quipped Seidel.

Ener1 is putting a lot of intellectual property into the joint venture with Wanxiang. In May,  when Ener1 and Wanxiang signed the letter of intent, I asked Tom Goesch, president of the transportation group at Ener1, whether Ener1 was worried about its intellectual property being stolen. He told me: “We feel the strategy of having a partner like Wanxiang, a China-based company, will provide us the best protection we can find. Wanxiang has all the reason in the world to protect that intellectual property.”

Talking with Seidel, I learned that Ener1 had also been worried about Wanxiang itself using the technology to land business deals outside of China, deals which would hurt Ener1’s business in the ex-China market. Indeed, Ener1 initially tried to limit the JV’s business scope to China. Wanxiang was (understandably) “not enthralled” at that provision, said Seidel.

The solution? According the contract, the JV’s board must unanimously approve any deal outside of China that is greater than 5% of the previous year’s total revenue. That way, “if it is to the detriment of Ener1, our one vote could stop” the deal, said Seidel.  (Ener1 owns 40% of the JV and therefore appoints 40% of the board, said Ener1 spokesman Brian Sinderson.)

Ener1 has big hopes for the JV. If the battery cell quality is as good as those produced at its plant in Korea, and the cost is competitive, Ener hopes to source batteries in China for global operations.  He hopes the Wanxiang JV can become Ener1’s low-cost manufacturing model, Seidel told me.

Wanxiang EV is concentrating on electric buses initially. It figures Ener1's expertise will give it an edge over local competitors.

For now, however, the JV is just getting started. It will initially concentrate on fulfilling existing contracts Wanxiang has with some local bus companies. By 2014, it should have annual cell manufacturing capacity of 300 million Ampere hours, or about 40,000 EV battery packs according to a press release.

Said Seidel: “I’m very optimistic for the JV.”