PowerGenix CEO admits pairing with Chinese firm to make batteries in China won’t be easy

I got a press release a few weeks ago about a new battery joint venture in China that caught my attention.  http://tinyurl.com/87eleqq  For one, the battery chemistry was nickel zinc, something I hadn’t seen before. And, the Chinese partner was a company called China City Construction Corp., http://www.cccc-6.com/En/mana/shownews.asp?id=152 based in the central China province of Anhui. I looked up CCCC, or at least I think I did. It is a big state-owned infrastructure developer that apparently used to be owned by the People’s Liberation Army. The PLA was ordered to stop owning commercial businesses in 1998. The army divested itself of companies like CCCC, but left an army guy in charge. So it is not only a state-owned enterprise, it is one with a military background. Kinda interesting.

To learn more, I talked with Dan Squiller, CEO of PowerGenix. I came away thinking he has some rough months ahead that will surely be eventful but maybe not too fun.

Dan Squiller, CEO of PowerGenix, felt a bond with the head of a Chinese infrastructure company

First the basics. PowerGenix, based in San Diego, CA, produces rechargeable Nickel Zinc batteries. From the PowerGenix website: “Its high energy density and high discharge rate capability make it an ideal solution for applications that demand large amounts of power in a small and lightweight package. Cordless power tools, premium UPS systems, electric scooters, specialty military equipment, and high-intensity DC lighting are among the applications in which rechargeable NiZn batteries are best applied.” In the automotive world, PowerGenix aims at the hybrid market, especially mild hybrids that use stop/start technology, which stops the engine when a car is, for example, at a traffic light, then starts it again when the accelerator pedal is pushed.

Its China joint venture will focus on the hybrid applications, said Squiller. PowerGenix will own 49% and CCCC will own 51% of CCCC-PowerGenix Clean Energy Co., as the JV will be known. It will be more than just a manufacturer, insisted Squiller. “The idea is we are building out a fully functional company with sales, manufacturing, and after sales support,” he said. PowerGenix will contribute intellectual property and CCCC will supply capital to build the plant and guanxi—literally “relations” but in this case connections. It was a strategic decision to give CCCC majority ownership, said Squiller. “We will be doing business primarily in China,” he said. “It also helps with (government) grants and incentives.” Well, as I learned, CCCC is eyeing overseas markets, as well. But more on that later.

The JV will build a greenfield plant – locations are being scouted and local governments are courting them, said Squiller. It will likely be in Anhui, he adds. Anhui is one of China’s poorest provinces, but it does have a substantial automotive production base, and thus a well-developed supplier base. Chery Automobile Co., www.cheryinternational.com China’s eighth largest automaker based on sales, is based in Anhui, as is Jianghuai Automobile Co. http://jacen.jac.com.cn/

The plan is for three phases of construction, each adding the same amount of capacity. According to the plan, production will begin by the end of 2012 with an initial capacity of 400,000 batteries annually. But, admits Squiller, that is dependent on business licensing and government approvals being completed in a timely manner. “There is the plan and there is the reality,” he said ruefully.

CCCC-PowerGenix Clean Energy Co., as the JV is known, doesn’t have any customers yet (Which is a good thing since it is unclear when it will actually begin producing batteries.). But it has batteries being tested at “all the usual suspects,” said Squiller. Okay, but there are lots of battery makers in China, I said. What will allow PowerGenix to succeed? Its battery chemistry, said Squiller. Only a few companies are producing NiZn batteries, and those are usually the small AAA batteries for consumer goods, he said. PowerGenix spent 10 years creating a NiZn battery with a long enough life cycle, good enough energy yields, and a low enough cost for the automotive world, said Squiller. That is what made it attractive as a partner to CCCC, he said. “CCCC is just not interested in getting into the energy storage fray with lithium ion,” he said. “They picked something unique.”

Stop/start systems, which is where PowerGenix sees a market in China, are not new. They are ubiquitous in Europe, and some automakers in China are already installing them. The Buick LaCrosse launched by General Motors in China in August of 2011 uses a lithium ion battery in the stop/start technology in its e-Assist system, http://tinyurl.com/7c6kuav as does the Chevy Malibu due in China in Q1 this year. Audi has said that all its models in China will have stop/start systems by 2012.  http://tinyurl.com/7au2nok Local automakers are also using stop/start. Geely plans to install stop/start on an Emgrand model, and Hafei will introduce it on a minivan model. But there is no guarantee it will spread.

Squiller said adding stop/start to a car adds from $400 to $600 to the total cost, and the battery represents 1/3 to ½ of that amount. He claimed the PowerGenix battery was smaller (and thus lighter) than the batteries currently being used, and could be dropped in without major changes. “The voltage on the alternator needs to be tweaked,” he said. But “we are compatible with all engine systems.” But, pointed out Michael Omotoso, senior manager for global powertrains at LMC Automotive, www.lmc-auto.com the engine has to already be designed to work with stop/start technology. So CCCC-PowerGenix Clean Energy Co. will be fighting for a share of a small (albeit growing) share of the market…when it actually starts producing batteries in China.

Strange bedfellows

Exactly how does a San Diego battery maker get hooked up with an Anhui-based former PLA construction company? Through a business associate’s company that helps identify Chinese partners, said Squiller. CCCC and PowerGenix had the “same priorities in the green space, and the same management perspective,” he said. “There is a corporate culture and DNA,” he said, “but at the end of the day it is the two leaders and their personal relationship and how they think and operate.” I can’t help but wonder how Squiller’s thinking and modus operandi could resemble a Chinese (and likely) ex-PLA head of a state-owned enterprise.

To be sure, Squiller is no stranger to China. He made his first business trip to China in 1982, he said, even earlier than I was there! (I first lived in China in 1984). Squiller said he had started R&D centers and JVs in China, and was even in Beijing during the Tiananmen protests in 1989. Still, a friend who worked on a real estate deal with a former PLA company described it as “impossibly opaque, non-communicative, uncooperative, and self-interested to an unbelievable degree—even for China.” Squiller did admit that “it is exceedingly difficult to work cross culture.” The joint venture with CCCC would require “a great deal of patience and expertise,” he said. “We don’t think this will be like selling ice cream from a stand across the street.” Well, at least he seems to know what he is getting into.