Published online 24 September 2009 | Nature | doi:10.1038/news.2009.948

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Battery business boost

University spin-out opens trading as a billion-dollar company.

City tradersMore shares in battery manufacturer A123 were sold than initially expected.Punchstock

One university spin-out company has suddenly turned investors batty for batteries. A123 Systems, a rechargeable-battery manufacturer founded in 2001 by materials scientist Yet-Ming Chiang and colleagues from the Massachusetts Institute of Technology in Cambridge, got a flying start to its life as a publicly traded company.

A123, based in Watertown, Massachusetts, first announced its intention to offer public shares in August 2008, with predictions that they would sell for between US$8 and $9.50. But yesterday, they flew off the shelves at $13.50 a share, with around 28 million shares being sold — 3 million more than expected. This bagged the company a cool $380 million ahead of its first day's trading on the NASDAQ stock exchange today. "It's very exciting news," says John Petersen, a lawyer specializing in energy-storage companies at law firm Fefer, Petersen and Cie in Barbereche, Switzerland. "I think the next 20 years are going to be times of immense prosperity for the battery industry," he says.

The cash boost comes shortly after A123 received a $249-million grant in August this year from the US Department of Energy to develop batteries for electric vehicles. The company has also raised more than $350 million in private investments. Add to this the money from the shares, a $69-million investment from General Electric and $100 million in refundable tax credits from the Michigan Economic Development Corporation, and A123 Systems becomes a billion-dollar company. The firm also applied for a $1.8-billion loan from the US government in January this year, with the intention of building a mass-production facility in Michigan.

"It's a very solid company poised to continue to grow," says analyst Michael Holman from Lux Research in New York. But, cautions Holman, "There are a lot of risks, particularly in the electric-vehicle market for A123."

Charging ahead

The fuss is all centred on lithium iron phosphate, a material used by A123 to make the cathodes in its rechargeable batteries. It was developed by engineer and physicist John Goodenough and his team at the University of Texas, Austin; Goodenough is often credited with inventing rechargeable lithium-ion batteries. A123 says that it has developed Goodenough's invention to include nanometre-sized particles of the material. But a dispute over whether the invention is sufficiently different to Goodenough's has landed A123 in a legal battle with the University of Texas over patent rights, which is ongoing.

Lithium iron phosphate is one of a range of rechargeable battery technologies based on materials that contain lithium metal ions as a cathode. These ions carry charge through an electrolyte between the cathode and anode, and it is this ion flow that charges and discharges the battery.

“There are a lot of risks, particularly in the electric-vehicle market for A123.”

Michael Holman
Lux Research

The first commercial lithium-ion batteries used lithium cobalt oxide as the cathode and graphite as the anode. These are standard in portable electronics devices, such as laptops and mobile phones, but have some safety problems — battery explosions have occurred because oxygen can be given off quickly. These problems are avoided with lithium iron phosphates. "Compared to the oxides, [the phosphate battery] doesn't release oxygen when the battery is charged. It's much more stable," says Michael Thackeray, a lithium-battery expert from the US Department of Energy's Argonne National Laboratory in Illinois.

But this added safety comes at a price, with a compromise on energy density. This means that the phosphate batteries don't have the same capacity to store charge as the lithium metal-oxide batteries, which could make them unsuitable for use in fully-electric vehicles, although in a plug-in hybrid vehicle — which uses the battery just to get the car going — they will fare better.

Indeed, in April this year, A123 formed deals with the US car manufacturer Chrysler to make batteries for its electric cars. Other applications for A123 products include batteries for portable power tools and huge batteries to support national electricity grids.

Stanley Whittingham, a lithium-battery pioneer from Binghamton University in New York, says that despite the energy-density problems, lithium iron phosphate batteries are "a success story". Four or five years ago, A123 was "a non-entity", he notes.

Hype or hit?

The phosphate battery material that A123 has its hopes pinned on is one of two main contenders at the moment for electric vehicle batteries, says Peter Bruce, an electrochemist from the University of St Andrews, UK. The other is lithium manganese oxide, which is used in batteries because it can form a specific three-dimensional structure called a spinel. Both technologies are low in cost and safe compared with that used in laptop batteries, Bruce says.

Petersen notes that the current market for lithium-ion batteries is about $7 billion a year.

"If one material wins, then there's a lot of money around," says Bruce.

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Meanwhile, Japanese car firm Toyota decided earlier this month that lithium-ion batteries are not yet developed enough to be considered for use in its Prius hybrid electric car, preferring instead to keep using nickel metal hydride batteries.

Holman suggests that despite the interest in and success of A123's public share offer, venture capitalists might still be disappointed by the return on their investment, which for those who sank money initially stands at around three times what they invested. This is much less than a typical venture capitalist's deal, which would seek to get returns on investments between eight and ten times what was invested in the same time period, Holman says. "Once the dust settles and people see the figures, they are going to question whether the venture-capital model is the best way to bring technologies from the lab to market," he says. 

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