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Working Paper 05–01

V. Conclusion: Why Are There No Volume Li-ion Manufacturers in the United States?

Dramatic growth in the rechargeable battery market during the 1990s and into the new century has been dependent on a number of factors. These include:

  • the exponential growth of the portable electronic product market sector;
  • the ability to introduce improved rechargeable battery technology and rapidly ramp up production levels to meet demand;
  • delivery of high quality and safe products, competing on market share over margins;
  • the openness of non-vertically integrated portable computer and cell phone producers;
  • strong product OEM relationships; and
  • aggressive price reductions throughout the industry.

The major U.S. battery producers were not well positioned to compete along these factors. The competition from Asian companies caused most major North American rechargeable cell manufacturers to strategically exit the business. The U.S. battery companies "opted out" of volume manufacturing of Li-ion batteries, primarily because of a low return on investment compared to their existing businesses. Battery technology requires significant time and investment from conception to commercialization. An important consideration for U.S. battery manufacturers was the time and expense required to establish a sales organization in Japan to access product design opportunities. One Japanese interviewee reported that the Americans just gave up the fight.

Interviews conducted with numerous U.S. companies suggest that the U.S. companies missed the growth curve. Japanese companies gained considerable "first-to-market" advantage in obtaining high prices and profits initially. By the time U.S. companies decided to begin commercialization, prices for cells were dropping. U.S. companies had not anticipated the rapidity with which the Japanese companies would develop and commercialize Li-ion technologies.

According to one U.S. VP of technology, their financial analysis indicated that they could produce cells in the United States for essentially the same cost as their Japanese counterparts. The analysis also showed, however, that the profits delivered by the Li-ion venture would be significantly lower than that delivered by their alkaline cell business. Thus U.S. companies were unwilling to tolerate the market pressure for quarterly profits and lower personal bonuses, in order to invest in the future. In contrast, Japanese companies sought market share rather than short-term profits and were more willing to make investments for the longer term.

Also contributing to the decision-making environment were structural differences between U.S. and Japanese business environments. For example, for U.S. companies, marketing costs were higher for rechargeable batteries than for alkaline cells. Since most device designers and customers were located in Japan, U.S. companies would need a strong sales effort to compete overseas, especially in Japan. Establishing a presence in Japan for a company generally requires five to seven years of intense activity to be effective. In-house utilization of Li-ion batteries by the vertically integrated Japanese consumer electronics companies functions as a trade barrier to absence of an American version of the Japanese vertically integrated consumer electronics company, U.S. battery producers might have teamed up with U.S. manufacturers of cell phones, notebooks, and other portable devices, such as Motorola, Dell, and HP (now including Compaq), but did not. In a short period of time, the U.S. companies exited the business.

Labor costs were not a critical or deciding issue, as the cost to produce cells in the United States was essentially the same as for the Japanese manufacturers. The Asian strategy of providing facilities and loans to establish local manufacturing and create jobs at home proved more important. On the other hand, labor costs were instrumental in locating battery pack assembly plants, with repercussions ultimately for higher-valued processes.

Structural differences of Japanese electronic products industry compared with its U.S. counterpart create barriers to U.S. firms seeking to market rechargeable batteries or battery materials in Japan. In markets for rechargeable batteries, customers are large, high-technology-based electronics companies, typically having Li-ion production within the same company. Developing a product requires close contact with portable electronic device designers.

Huge investments have been made in Japan, Taiwan, South Korea, and Southeast Asia in a global effort to capture the market for rechargeable batteries for telecommunications, wireless, and computer products. The magnitude of the investment in Asia has been such that the United States progressively has lost its technological position, despite the fact that U.S. and Canadian researchers provided many of the critical technology breakthroughs required to establish the technical feasibility of the currently pre-eminent Li-ion polymer battery. North American companies failed to capitalize on this early technological leadership, and Asian companies have since established a dominant position in the production of Li-ion polymer batteries. The United States has become an incubator for new technologies and materials for rechargeable batteries, while the Asian companies have developed the manufacturing expertise and capital facilities to profit from the technology and build their presence at home.

The United States still leads in developing new technology and is the major source for new concepts in battery, fuel cell, and display technologies. In a real sense, the United States has become an incubator for new technologies relating to the electronics industry, while Asian and European companies are developing the manufacturing expertise. In Korea, KIST, the Korean Institute of Standards and Technology, has a goal of transferring the good technology ideas developed by small U.S. companies to the large Korean manufacturers. Similarly, most large Japanese producers maintain a technology surveillance unit in the United States to identify promising new technology for use in their new products.

The tendency may be for technological development to follow manufacturing in moving to East Asia. This would be a natural consequence of East Asian companies' developing manufacturing expertise. Primary as well as rechargeable battery production may slowly shift to China, Korea, and Southeast Asia following Japan 's initial lead in rechargeable battery production. U.S. manufacturers pursuing other budding energy technologies, such as fuel cells, will face similar issues. Opportunities still exist for companies to successfully enter niche markets, such as those with medical, military, or space applications.

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Date created: July 21, 2005
Last updated: August 4, 2005

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