U.S. R&D Spending Aims to Jump-Start Electric-Car Industry

Hefty federal investments in the electric-car sector aim to help create a big-enough manufacturing base to produce as many as 500,000 electric cars each year by 2015, according to a report from the U.S. Energy Department on Wednesday.

The funds should also boost the U.S. share of global battery production to 40% in 2015, from 2% in 2009, and cut the cost for some electric-car batteries by nearly 70% during the same period. The DOE says the growth will likely come with tens of thousands of new U.S. jobs.

The DOE report highlights the results so far -- and potential impact down the road -- of $2.4 billion worth of grants that it doled out to many manufacturers and researchers on batteries, engines and charging equipment last summer. The report says: "For every dollar of the $2.4 billion, the companies have matched it at minimum dollar for dollar." Congress allocated the money as part of the stimulus package to create jobs and combat recession, and the $2.4 billion is just part of a much larger federal investment in the electric car sector.

Jolt for Battery Producers

The report also is timed to coincide with President Barack Obama's presence at a groundbreaking ceremony of a battery factory in Michigan on July 15. The factory, owned by Compact Power (part of Korea-based LG Chem), has received $151 million from the government, and the manufacturer is putting up the same amount of its own for the project.

It's one of the nine battery manufacturing projects to receive the stimulus funding, and all of them will have begun construction after the groundbreaking ceremony for the Compact Power factory, the DOE says. Compact Power is set to produce batteries for GM's Chevy Volt, a plug-in gasoline-electric hybrid sedan, and the all-electric Ford (F) Focus.

Four of the factories will start operating by year-end. The government has also funded 21 other factories for making various electric car components in its bid to expand the manufacturing base for electric cars.

Powering Up Charging Stations

The battery is one of the most expensive components of an electric car, so cutting down its production cost will be critical for popularizing electric cars. Several manufacturers plan to launch electric cars -- or models that can run on both gasoline and electricity and require charging to replenish the batteries -- over the next few years. But those cars will come with sticker prices far higher than your basic Honda (HMC) Civic or Toyota (TM) Corolla, even after the $7,500 federal tax credit for buying fuel-efficient vehicles.

The DOE reckons that a boost in battery manufacturing will drive down the cost of a battery from $33,000 to $16,000 by 2013 and $10,000 by 2015, assuming the battery is for a car with a 100-mile range. Some of the biggest battery makers today are in Asia.

The stimulus money also has gone to manufacturing and installing charging stations. Before the federal aid, the country had less than 500 charging stations. By 2012, the DOE expects to see over 20,000.

All this government spending has also buoyed private investments in fuel-efficient cars. Coda Automotive in California raised $58 million in venture capital earlier this year. Tesla Motors (TSLA) saw a blockbuster initial public offering last month, raising $226.1 million.