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A123Systems Reveals 2008 Conversion Plans; Senate Finance Committee is Focus of

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  • Felix Kramer
    Today at a Senate Finance Committee s Subcommittee hearing, the CEO of battery maker A123Systems unveiled its plans for large-scale conversions of existing
    Message 1 of 1 , May 1, 2007
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      Today at a Senate Finance Committee's Subcommittee hearing, the CEO of
      battery maker A123Systems unveiled its plans for large-scale
      conversions of existing hybrids in the interim before major carmakers
      mass-produce PHEVs. This could accelerate the interest and support for
      PHEVs and motivate carmakers to advance their plans. (And it
      essentially confirms recent days' rumors about the acquisition or
      integration of Hymotion into A123.)

      David Vieau's testimony is below. It's long but worth reading! It
      includes proposals that PHEV conversions of hundreds of thousands of
      existing hybrids be eligible for tax breaks along with mass-produced
      PHEVs, and addresses provisions of the Committee's Energy Efficiency
      Promotion Act (S. 1115), now in hearings.

      Before that, to provide a quick summary of the company's plans, we
      excerpt the introduction of an analysis by Green Car Congress. (That
      report goes on to address emissions issues in conversion vehicles,
      expanding on a previous Green Car Congress posting, "PHEVs on the
      Global Engineering Agenda; Defining and Refining the Problem.")

      And we wind up this posting with a letter from the chief Senate
      sponsors of the bipartisan Dependence Reduction Through Innovation in
      Vehicles and Energy (DRIVE) Act, urging Finance Committee ranking
      Senators Bingaman and Domenici to include provisions of the DRIVE Act
      in (S. 1115) as they mark up that bill this week.

      ****************

      A123Systems to Market PHEV Conversion Packs in 2008
      1 May 2007
      http://www.greencarcongress.com/2007/05/a123systems_to_.html
      Lithium-ion battery manufacturer A123Systems intends to begin
      marketing battery packs in 2008 for third-party conversion of hybrids
      to plug-in hybrid electric vehicles (PHEVs), according to A123Systems
      CEO David Vieau. Vieau made the remarks in testimony before the US
      Senate Committee On Finance Subcommittee On Energy, Natural Resources,
      And Infrastructure.

      A123Systems has been working closely with Hymotion on the plug-in
      conversion systems. Recently, the California South Coast Air Quality
      Management District (AQMD) awarded the companies a contract to convert
      10 Prius hybrids to PHEVs. (Earlier post.)

      The Hymotion PHEV module requires minimal modification to the stock
      vehicle. All necessary components and safety features are integrated
      and contained within the module, including: batteries, power
      electronics, crash sensors, power electronics, charger, battery
      management system, safety sensors and manual-electric interlock. The
      system does not require removal of the OEM battery pack and can be
      installed in less than 2 hours, according to the companies.

      After focusing on fleet testing this year, A123systems intends to
      market the PHEV conversion modules starting in 2008.

      It will be certified to meet all applicable new car test standards
      and will be installed by trained mechanics in less than 2 hours,
      without any changes to the underlying electronics, mechanics or
      materially useable space of the production hybrid other than the
      installation of the plug in the rear bumper.

      The applicable market in the US for standard production hybrids
      will be approaching 1 million through the course of this year. With
      almost two dozen hybrid models expected by the end of 2008, there will
      be 5 million standard hybrids on the road by 2010. At an initial 40
      mile module installed price of $10,000 supported with a $3,500 tax
      credit, the payback period for a fleet owner with $3.00/gallon gas is
      2.5 years, against an expected life of 10 or more years. The payback
      period for the average commuter driving 11,000 miles per year would be
      5.5 years. These calculations place no value on the net reduction of
      approximately 100 tons of carbon dioxide and other emissions over the
      life of the vehicle and take no account of the cost reductions which
      could accrue from additional materials research and increasing
      production volumes.
      —David Vieau

      Vieau urged the senators to apply any tax incentive applicable to
      customers of factory original plug-in hybrids some years out to
      tested, standardized plug-in modules offered earlier by qualified
      companies.

      We estimate a fivefold increase in demand for these modules from
      an increasingly responsive American public as a result of providing
      for this early responder tax credit.
      —David Vieau

      The current Hymotion/A123Systems PHEV module is a 5 kWh pack that
      operates only in the all-electric mode of the conventional Prius—i.e.,
      maximum charge-depletion mode. (As a contrast, the Energy CS
      Prius—which replaces the OEM pack—has two modes of operation: EV mode
      and a blended mode designed to deliver better emissions performance.)
      <snip>

      ****************

      Testimony Of David Vieau, CEO, A123Systems, Watertown, Massachusetts
      Before The
      United States Senate Committee On Finance
      Subcommittee On Energy, Natural Resources, And Infrastructure
      Concerning Advanced Technology Vehicles: The Road Ahead
      May 1, 2007
      http://www.finance.senate.gov/sitepages/hearing050107.htm

      A123Systems Role In The Coming Hybrid And Plug In Hybrid Revolution

      Mr. Chairman [Jeff Bingaman, NM], Senator Thomas [Craig Thomas, WY]
      and Members of the Subcommittee;

      Knowing of your and the Committee's interest in fostering new American
      technologies in the critical effort to slow down climate change and
      reduce our dependence on foreign oil, I thank you for the opportunity
      to appear before you today to explain and answer questions about
      A123Systems' progress in developing what we and others believe is the
      state-of-the-art lithium ion battery that will help enable this nation
      to lead a worldwide plug-in hybrid transportation revolution starting now.

      Let me explain.

      The Company And Its Products

      A123Systems started 5 years ago as an MIT spin off with a $100,000 DOE
      SBIR grant. Today it has raised over $100 million, has over 300
      employees and operates facilities in Watertown, Massachusetts and Ann
      Arbor, Michigan. We sell millions of batteries annually to Black and
      Decker, Dewalt and others for high powered handheld applications. We
      also are developing higher powered solutions for the aerospace and
      defense industries and have been chosen by GM, and other major
      American and European automakers, to help develop and power their
      hybrid and plug-in hybrid sedans, SUVs, trucks, buses and heavy
      equipment moving vehicles which will be coming on line over the next 3
      to 5 years.

      This has all been made possible by our development of a unique
      Nanophoshate based lithium ion battery with a combination of power
      density, durability and safety in excess of anything mass produced on
      the market today. This assertion is confirmed by the ever growing list
      of partners who are choosing A123Systems as the power source of choice
      in enabling them to enter the increasingly attractive and profitable
      hybrid era.

      The automotive industry is in the middle of a critical transition to
      electric drive. Fueled by strong consumer demand for greener vehicles
      and a growing awareness of our greater responsibilities to our planet
      and our national security, there are now over 65 hybrid vehicle
      launches planned by 2010. We are working with leading American and
      European automakers to develop batteries for upcoming hybrids and are
      working with the DOE and the USABC to optimize our technology and
      provide leading price performance in this market.

      The next generation of technology beyond the conventional hybrid is
      the plug-in hybrid. This game changing technology is one where the US
      automakers have established technological leadership and which
      delivers many benefits including 100 MPG or greater efficiencies at a
      fraction of the cost of gasoline. A123Systems is a leading supplier of
      battery technology for plug-in hybrids. We are working with General
      Motors and other leading American and European automobile and heavy
      equipment manufacturers to validate and introduce this technology into
      the market.

      In fact, this week A123Systems and BAE Systems will be announcing
      that, starting in 2008, BAE Systems will be offering A123's lithium
      ion battery technology as part of its HybriDrive® Propulsion System
      used in hybrid busses. The HybriDrive® Propulsion System is currently
      in use in New York City, Toronto, and San Francisco.

      From passenger vehicles to large trucks and busses to fleet vehicles,
      these new technologies, enabled in part because of the performance
      metrics of A123Systems batteries, can change both the emissions and
      fuel consumption profiles of some of our largest concentrations of
      polluting commerce.

      Over the years, this Committee has been in the forefront of
      recognizing the need to nurture these kinds of breakthrough
      technologies by insuring early stimulation through the wise use of tax
      credits to kick start consumer demand. Putting the CLEAR ACT in place
      in 2005 was critical to both educating the public and producing the
      sale volumes that have lead to ever improving costs and economics. As
      a result, today's growing demand for hybrid vehicles is a tribute to
      the public's underestimated desire to do something about the health
      and national security risks of ever rising petroleum dependency when
      presented with economic choices.

      Clearly the number one message I want to leave you with today is that
      since we now know it made sense to provide several thousands of
      dollars in tax credits to start moving consumers from 15 MPG vehicles
      to 45 MPG vehicles, it certainly makes sense to do at least as much to
      achieve the 80% oil savings and 50% emissions reductions which will
      come with each comfortable, high performance plug-in hybrid vehicle
      designed to achieve 100 MPG or more.

      And the sooner we do that, the cleaner and safer this country will be.
      Which is why A123Systems has strategized on how to best to move along
      the continuum from producing millions of high performance A123Systems
      lithium ion batteries for handheld applications to adding the
      bandwidth required in 3 to 5 years to supply the major manufacturers
      with batteries for their fully designed and tested original equipment
      plug-in hybrid vehicles.

      So we asked ourselves how best to fill that gap in the most supportive
      way to maximize the earliest and ultimate success of the tens of
      millions of original equipment plug-in hybrids that will need to be
      rolling off the major manufacturers production lines through the next
      decade. The answer was to team with Hymotion, a leader in the field of
      companies utilizing our batteries in Battery Range Extender Modules
      that can be installed in the spare tire well of any existing hybrid.

      The result of that effort is parked right outside this building. On
      its face, it is one of the almost 1 million standard production
      hybrids now on the road in the US. Its original equipment nickel metal
      hydride battery provides enough power to go about one to two miles on
      electricity alone. But this car differs from most of its brethren in
      that it also has a supplemental module small enough to fit into it's
      spare tire well. This module contains our current production battery
      cells and delivers enough usable energy for the vehicle to travel the
      equivalent of 40 miles on electricity, achieving as much as 150 MPG in
      urban driving and 100 MPG in highway driving. This module is charged
      overnight from a regular 120 volt extension cord which plugs into the
      bumper.

      Since the average commuter travels under 30 miles per day, off peak
      nightly charging of this module both improves a utility's load factor
      and efficiencies while reducing total gasoline consumption and
      emissions dramatically. In fact, DOE's Argonne National Lab has tested
      an earlier version of this module providing independent validation of
      the 150 MPG urban efficiencies that plug-in hybrids provide.
      Prototypes now being driven around the country, including here in
      Washington, have been obtaining the same results which are several
      multiples of the 45 to 55 MPG today's production hybrids achieve.

      Now let me be clear. Over 100 MPG from a standard production hybrid
      with a supplemental battery module filled with our current production
      lithium ion batteries sitting out on the street right now for anyone
      to drive. And yes, it is affordable, reliable and a logical bridge
      between the even more efficient OEM plug-ins that will become
      available in mass by the beginning of the next decade and the ever
      growing millions of conventional hybrids that will be sold in the
      interim. We will be testing this technology with various fleets in
      2007 and now intend to market this standardized module nationwide in
      2008. It will be certified to meet all applicable new car test
      standards and will be installed by trained mechanics in less than 2
      hours, without any changes to the underlying electronics, mechanics or
      materially useable space of the production hybrid other than the
      installation of the plug in the rear bumper.

      The applicable market in the US for standard production hybrids will
      be approaching 1 million through the course of this year. With almost
      two dozen hybrid models expected by the end of 2008, there will be 5
      million standard hybrids on the road by 2010. At an initial 40 mile
      module installed price of $10,000 supported with a $3500 tax credit,
      the payback period for a fleet owner with $3.00/gallon gas is 2.5
      years, against an expected life of 10 or more years. The payback
      period for the average commuter driving 11,000 miles per year would be
      5.5 years. These calculations place no value on the net reduction of
      approximately 100 tons of carbon dioxide and other emissions over the
      life of the vehicle and take no account of the cost reductions which
      could accrue from additional materials research and increasing
      production volumes.

      I urge all of you to come look at the car and see what can be
      available to the American public starting later this year. With a
      modest tax credit, the average American can be in a full, responsive,
      comfortable sedan that can get over 100 MPG and cut net emissions by
      50% for under $30,000. And as volumes increase, prices also can be
      expected to eventually fall as in any new breakthrough product.

      Clearly the original equipment hybrids due out early in the next
      decade utilizing even better batteries integrated directly into the
      vehicle at the factory will be more efficient and less costly. But
      there can be as many as 15 million standard hybrids on the road when
      plug-in volumes skyrocket from 2012 to 2017. This A123Systems'
      technology can start today to stimulate the major oil and emission
      savings from the plug in equivalent of the first bulky cell phones and
      large laptop computers. In all these cases, it's much better than what
      was there before and not as good as it is going to get. But it can be
      an important part of a logical technology and policy continuum leading
      to an earlier 80% reduction in oil imports as we move to a dominantly
      plug-in hybrid national fleet.

      So I would urge you to be sure that any tax incentive applicable to
      plug-in hybrid consumers of factory originals available some years
      out, also be applicable to the tested, standardized, nationally
      marketed through certified installers, plug-in modules offered earlier
      by qualified companies for the growing millions of regular hybrids
      that will be on our roads. We estimate a fivefold increase in demand
      for these modules from an increasingly responsive American public as a
      result of providing for this early responder tax credit. Kick starting
      this transportation revolution now, by moving up by years the
      availability of this breakthrough so important to our national
      security, will:

      * Introduce a public hungry for tangible action now to a new American
      technology that lets them be part of the logical next step of a
      transportation revolution they have already started with their
      unprecedented demand for the standard hybrids available today.

      * Gather invaluable experience and data for the next generation of
      factory produced vehicles through earlier wide spread use of these
      higher tech batteries in real volumes in the everyday world.

      * Stimulate earlier battery cost reductions from the earlier volume sales

      * Advance by years the much needed 80% reduction in oil consumption
      and 50% emissions savings associated with every plug in on the road.

      * Serve the purpose of potentially speeding up the roll out of the all
      important factory produced plug ins as a result of the growing public
      awareness and response to module savings and availability.

      Our folks have been working with your staff and others on the
      Committee and in the House to insure a workable mechanism and
      allocation for a standardized credit that provides for a seamless
      transition to the mass volumes of plug-in vehicles we will need to cut
      our oil imports and emissions. At the same time, we can begin to
      restore American leadership and jobs as a result of this technological
      breakthrough. We stand ready to provide you with anything else you may
      need to assess this request.

      The Additional Importance Of a Truly Competitive Research And Job
      Creation Grant Program

      I also would like to address the importance of translating the
      potentially massive resource requirement of a plug-in revolution
      driven by American battery technology advances into maximum advantage
      for American technological leadership and job creation. A123Systems
      has already created more American Li Ion related jobs in the past 5
      years than any other American company. Having said that, I know you
      are aware that in many senses our major competition is as much foreign
      governments as it is domestic or foreign companies.

      Mr. Chairman, no one has done more over the years to address the need
      for a better US policy to prevent the recurring story of American
      technologies being successfully commercialized elsewhere. We all know
      foreign governments provide subsidies through investments and
      partnerships in the initial capital costs of research and
      manufacturing infrastructure that cannot be matched by investor owned
      US companies. You understand as well as anyone that in matters
      involving national security priorities like a restructuring of our
      energy consumption profile, we run the risk of losing our
      competitiveness again without finding an equitable way of leveling
      this playing field.

      Let me provide you with a few insights into that question from our
      perspective in the battery industry. The 100 MPG or more car sitting
      outside that window today is proof positive that right now the US is
      in the lead on the development and marketing of the breakthrough
      required to make the massive oil savings associated with plug-in
      hybrids a reality, with the least amount of infrastructure change.

      Currently, we plan to add further jobs in the US in the value added
      areas of materials research, battery engineering, module assembly and
      possibly pilot plant experimentation. But when it comes to actual mass
      production of Li Ion cells, we face an initial cost differential
      between the US and Asia that would make our products non-competitive.
      Without the kind of long term multi-billion dollar government support
      provided by countries like Japan and Korea to their battery company
      partners, A123Systems simply will not be competitive if these cell
      plants are built in the US, even with a substantial performance advantage.

      Your and Senator Domenici's Energy Efficiency Promotion Act Of 2007
      (SB1115) goes a long way toward starting to address these challenges
      with it's combination of grants, expanded DOE demonstration programs,
      loan guarantees, and improved basic and applied research programs.
      From our perspective as a relatively small company with an
      increasingly recognized breakout technology, there are a few
      adjustments and clarifications we would like to point out to make the
      bill as competitive and effective as possible in keeping American
      leadership and jobs in America as the battery driven plug in boom
      takes off.

      As written, the 30% grants for additional qualifying production
      facilities for automakers and component manufacturers in Section 303
      applies only to expansion or renovation of existing facilities. Yet,
      the most important driver of this revolution - much better batteries -
      will only be built in the US at new plants that do not exist at this
      time, since the vast amount of lithium ion manufacturing capacity is
      already overseas as a result of the Asian government's superior
      support policies for this very industry.

      It could be a mistake from our perspective to leave new battery plants
      in the US out of Section 303.

      The grant portion of Section 203 is far more appealing to A123Systems
      than the loan guarantee provision. Debt on the books, even at a lower
      interest rate, tends to tip the scales for manufacturing to Asia given
      the massive capital cost differentials. The time and administrative
      risk of securing DOE grants can also be a factor in this fast moving
      new world of cascading negotiations and expanding new orders.
      Provisions encouraging tight turn around time frames for decisions on
      the critical domestic applications for new plant construction grants
      in the US probably warrant consideration as well.

      Finally, you have made a good start in the defined new industry
      research programs in Sections 305 and 304. To insure the true
      "Competitiveness" referenced in the title for "Energy Storage Systems"
      in Section 304, we think it is important to make clear that the
      designated industry wide R&D funding be done on a company by company
      basis as opposed to a pooled basis.

      We want to see everyone encouraged to improve upon and beat everyone
      else in a fair and open competition. But if, as part of that process,
      industry wide funding involves industry wide sharing and publishing of
      data, smaller companies like A123Systems with leading technologies who
      most need the funding to keep the maximum number of jobs in the US,
      will not be inclined to sign up at the price of turning their
      advantage over to both their American and foreign competitors. The
      proprietary nature of each company's intellectual property should be
      preserved in the industry wide R&D program to push all participants to
      put forth their very best cutting edge efforts.

      Conclusion

      This nation can turn our current energy vulnerabilities into a new
      technological renaissance producing an increasing number of American
      jobs. We can do it by using a combination of demand pull tax
      incentives and grants to insure we shift our consumption 12

      of foreign oil to a more efficient, diversified, balanced and cleaner
      domestic electric grid. With your political will and leadership, and
      the kind of technological breakthroughs represented by that 100 or
      more MPG car sitting outside powered by A123Systems cells developed
      here in Boston and at our subsidiary, T/J Technologies, in Ann Arbor,
      and being pursued diligently and prudently as part of a partnership
      with Detroit that holds the key to reestablishing their technological
      leadership and superiority, we will succeed.

      Thank you Mr. Chairman and Members of the Committee for this
      opportunity to explain what we are doing and comment on what you
      propose. We appreciate your interest and support. We will now be glad
      to address any questions you may have on this or any other subject.

      ****************

      BIPARTISAN LETTER URGES ENERGY COMMITTEE TO ADOPT DRIVE ACT FOR ENERGY
      INDEPENDENCE
      Coleman and other lead authors of DRIVE Act urge Energy Committee to
      incorporate bipartisan oil savings plan in the Energy Efficiency
      Promotion Act
      http://coleman.senate.gov/index.cfm?FuseAction=PressReleases.Detail&PressRelease_id=1294&Month=4&Year=2007

      April 30th, 2007 - Washington, D.C. - As part of his ongoing efforts
      to break America's addiction to foreign oil, Senator Norm Coleman
      today with co-authors, Senators Evan Bayh, Sam Brownback, Joseph
      Lieberman, and Ken Salazar, sent a letter to the Chairman and Ranking
      member of the Senate Committee on Energy and Natural Resources urging
      them to strengthen their Energy Efficiency Promotion Act (S. 1115) by
      incorporating the Dependence Reduction Through Innovation in Vehicles
      and Energy (DRIVE) Act. The letter, sent to Chairman Jeff Bingaman and
      Ranking Member Pete Domenici, requested that Committee members use
      their upcoming committee mark up of energy legislation to bring S.
      1115 up to the DRIVE Act's strong, bold standards. The letter urges
      inclusion of DRIVE Act provisions that create a mandatory oil savings
      program, incentivize energy efficient technologies, and promote
      renewable fuels and E-85 infrastructure. Senator Coleman is a lead
      cosponsor of the DRIVE Act.

      "I was pleased to see that portions of the DRIVE Act were included in
      Chairman Bingaman's legislation, but we can go further by including
      all of the DRIVE Act's initiatives," said Coleman. "The threat to our
      nation caused by foreign oil dependency is real, and we need solution
      equal to that challenge. The DRIVE Act provides a real blueprint for
      gaining energy independence by coordinating a government-wide plan to
      save 2.5 million barrels of oil a day by 2016—the amount we currently
      import from the Middle East. The DRIVE Act offers an aggressive
      strategy and real world solutions. We cannot miss an opportunity to
      move this critical legislation forward."

      The DRIVE Act's plan to meet its oil savings requirements include
      provisions to:

      * Increase availability of home-grown, renewable fuels like ethanol
      and expand E-85 infrastructure;

      * Provide tax credits for manufacturers who want to retool their
      factories to build hybrid electric, plug-in hybrid electric and flex
      fuel vehicles;

      * Require federal and state vehicles to cut oil use by 30 percent by
      2016 and ensure that 23 percent of their fleets are advanced diesels,
      hybrids or plug-in hybrids so that government sets an example and
      spurs the market for energy innovation; and

      * Lift the per manufacturer cap on consumer tax credits for the
      purchase of hybrids and advanced diesels so more consumers receive tax
      incentives to purchase hybrids.

      "Now is the time to confront our nation's energy dependence directly
      if we are going to break our addiction to foreign oil," said Coleman.
      "To that end, we need to make sure that any legislation that we pass
      contains nothing but the strongest provisions that will help set us on
      the road to energy independence."

      -- -- -- -- -- -- -- -- -- -- -- --
      Felix Kramer fkramer@...
      Founder California Cars Initiative
      http://www.calcars.org
      http://www.calcars.org/news-archive.html
      -- -- -- -- -- -- -- -- -- -- -- --
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