December 20, 2011

Can We Build Tomorrow's Breakthroughs?

By: David Rotman

Source: Technology Review




If you believe Thomas Friedman's assertion that "the world is flat," and that moving manufacturing to places where production is cheap makes companies more competitive, such a shift might not matter beyond its implications for the U.S. economy and its workers. But the United States remains the world's most prolific source of new technologies, particularly materials-based ones, and evidence is growing that its diminished manufacturing capabilities could severely cripple global innovation. There are ample reasons to believe that the model of the U.S. computer industry—which has successfully outsourced much of its production in the last few decades and made design, not manufacturing, its priority—will not work effectively for companies trying to commercialize innovations in energy, advanced materials, and other emerging sectors.




After decades as the world's largest manufacturer, the United States now makes, according to some recent estimates, 19.4 percent of the world's manufactured goods—second to China, which makes 19.8 percent. Even in high-tech products, the United States now imports more than it makes. Those statistics have implications for employment, national competitiveness, and even the politics and social structure of the country. But equally worrisome, especially over the long term, is what the declining ability of the United States to make stuff implies for the next generation of technology. Can the United States regain its ability to take on high-risk manufacturing? To ask the same question in a different way, are many of today's most promising innovations in danger of suffering the same fate as integrated photonic chips?



Amid the ruins, however, the GM Detroit Hamtramck assembly plant is an oasis of order and activity. Though its parking lot is less than half full on a day in early fall, the massive plant, built in the mid-1980s to make Cadillacs and Buicks, embodies Detroit's attempt to reinvent itself. A field of solar panels has been installed in front of it; at the edge of the visitors' parking lot is a row of carports equipped with electrical outlets.




The potential appetite for batteries among GM and other automakers has led to the construction of at least half a dozen manufacturing and assembly plants in a 200-mile radius around Detroit. Spurred in part by the Obama administration's $2.4 billion in funding for advanced-battery production and electric vehicles, this development presents a vision of what a recovery in the region's manufacturing base might look like. It also presents a snapshot of the huge challenge involved in creating such an infrastructure.

About 125 miles north of the Detroit Hamtramck assembly plant is one of the largest of the new battery facilities. Dow Kokam, a joint venture of Dow Chemical, TK Advanced Battery, and the French firm Groupe Industriel Marcel Dassault, is building a $322 million factory in Midland, Michigan, that will be able to make enough lithium-ion battery cells for some 30,000 electric cars. Though construction is ongoing and much of the equipment is still being installed, a quick tour gives a sense of the operation's size and complexity. In one large high-ceilinged room are a vast number of automated racks where each battery cell will be "formed," a critical operation in which the battery is charged and discharged to precisely set the chemistry.

It's this kind of scale and attention to detail that attract the interest of companies like Dow, the world's second-largest chemical producer. The plant sits just outside the boundaries of Dow's Michigan chemical operations, a small city of low-rise production buildings connected by a maze of crisscrossing overhead pipes. It's a sprawling testimony to the connections between various ingredients and feedstocks used in making industrial products, and to the efficiencies of scale often required in manufacturing.


Like GE's Idelchik, Dow's chief technology officer, William Banholzer, acknowledges the risks of scaling up new technologies. But he says Dow's size and deep pockets allow it to take risks that would be difficult for small startups, and its extensive infrastructure allows it to efficiently integrate the various aspects of the manufacturing process. Dow's size also allowed it to hedge its bets on batteries by entering other new energy markets. On the opposite side of the vast manufacturing complex from the Dow Kokam plant, it is building a solar manufacturing facility, which will make roofing shingles that incorporate thin-film photovoltaics. "The scale of energy is so big it's very tough to say energy is going to get solved by small companies," says Banholzer. It's not until you've actually begun manufacturing that you "get a look at your true costs and warts," he says. In energy businesses where a demonstration plant might cost $500 million, "the venture-capital model breaks down," he adds. "The big question is: can small companies ever compete with big companies in this area?"




The strategy begins with the recognition that any new technology must promise advantages far beyond what is possible with existing products. "If you start with the current [lithium-ion] technology," she says, "you may get five or 10 or 20 points' worth of performance by tweaking that process, but you have to accept that you're never going to get anything transformative." But doubling the energy density of batteries could have an enormous impact in powering communication devices, she says, especially in areas with little access to electricity for frequent charging. Transportation could be affected even more profoundly. New batteries with greater energy density and significantly lower cost could raise demand for electric vehicles to a whole new level, she says.

So she and her colleagues "started with the periodic table" to invent a new battery. From the first, the company knew the technology had to scale. "We didn't take a clean sheet of paper to manufacturing," she says. "We started by an analysis of manufacturing approaches that had been and could be scaled."

Turning up the heat: The “calciner," shown, is critical in fabricating powders for the ceramic. Credit: Ian Allen

Looking to the periodic table for materials that might overturn current technology is a frequent strategy these days for early-stage energy startups. Gerbrand Ceder, a materials scientist at MIT, initiated a "materials genome project" several years ago that uses computers to analyze and predict the properties of materials "across the known chemical universe" and hopes to create an open database of the information. (After the White House announced its Materials Genome Initiative, he agreed to rename his effort the Materials Project to avoid any confusion.) A major goal is to more efficiently identify materials that are suitable for manufacturing.

Ceder has systematically analyzed various compounds for their potential as battery materials. Using the computational tools developed by his materials genome project, Pellion, a startup in Cambridge, Massachusetts, that he cofounded in 2009, has identified new cathodes for a magnesium-based battery. If it works, Ceder says, the batteries could have double or triple the energy density of today's lithium-ion batteries. Equally important, he says, they could "feed into the existing lithium-ion battery manufacturing." And that's critical, he says, because "if you have to invent a new material that can replace the existing one, it might take five to 10 years, but if you also have to invent a new design, it can take 10 to 20 years."


As the risks and cost of scaling up energy technologies grow increasingly evident, it's becoming common for startups to consider the practicalities of manufacturing when they conceive their innovations. But how does a tiny company, even with a radically different material, hope to succeed in highly competitive solar and battery markets that require huge capital investments? Partnering with a large company is an obvious strategy. Alta Devices, for example, is working with Dow on next-generation materials for the chemical company's solar shingles; GM is an investor in Sakti3. Still, the energy startups face the daunting truth that scaling up innovations into successful manufacturing operations can take hundreds of millions of dollars.






The company soon became one of the nation's highest-profile energy startups—and one of the few that have scaled up their technology, building what it claimed in 2010 was the "largest lithium-ion automotive battery plant in North America." In 2009 it went public, raising around $400 million. But unfortunately for those hoping to emulate such success, the political and financial circumstances that allowed A123 to garner nearly $1 billion in private and public investments are long gone.

One of the lessons from A123 is "exactly how much it cost" to become successful, Chiang says. "And one wonders how often that can be replicated. In the current climate, one wonders whether there is a will to do this over and over again." In the biotech industry, the path to commercialization has become clear over the years—partnering with large pharmaceutical companies, meeting expected milestones, and undergoing the regulatory approval process required for new products. But it's not so simple for energy startups, says Chiang, whose latest startup, 24M, is hoping to develop a radically new battery technology. Those small companies developing new energy technologies, he says, "still have to figure it out."



These days, Evergreen Solar's three-year-old manufacturing plant in Marlborough, Massachusetts, sits empty with a large "For Lease" sign in front. The bankruptcy of Evergreen in August, and of ­Solyndra a month later, produced much hand-wringing over the future of solar power. In particular, the collapse of Solyndra, a Silicon Valley–based manufacturer that had received a $535 million loan guarantee from the federal government, has led to criticism of the role the government has played in supporting renewable energy and, in particular, its poor record in "picking winners."


There are other manufacturing lessons to be learned from the collapses of these two businesses. Evergreen's innovation revolved around a single step in the production process—a way to make silicon wafers more cheaply. Yet the company made and sold complete solar panels—and they were a different size from the industry standard, forcing its customers into the undesirable position of making a long-term commitment to a specific technology.

Likewise, Solyndra (one of TR's 50 most innovative companies in 2010) made a series of manufacturing missteps. In a filing with government regulators in December 2009, the company acknowledged that "our custom-built equipment may take longer and cost more to engineer and build than expected and may never operate as required to meet our production plans." Such words of caution are often boilerplate in these filings, but in this case they were prescient. In particular, Solyndra attempted to build out its manufacturing capacity at a rapid pace, planning a second production plant even as it was still expanding the first one—and losing vast amounts of money because of its relatively high costs. In retrospect, it is obvious that both companies expanded manufacturing far too fast, with far too little understanding of their unique production processes, their competition, or their customers' requirements.


One of the lessons of the Solyndra failure is that it involved "betting on a very risky technology" and spending hundreds of millions on unproven production processes, says Pradeep Haldar, who leads the new Photovoltaic Manufacturing Consortium in Albany, a partnership between Sematech and CNSE. In contrast, he says, manufacturers of thin-film solar cells can use the existing infrastructure at the Albany facility to get "a reality check," including reactions from materials suppliers and potential customers.

This collaborative approach is attractive even for large manufacturers such as GE. "Innovation is a team sport," says Idelchik, but too often in the United States "we're trying to do it in a vacuum." Opportunities like those offered at the Albany nanotech center are particularly important, he believes, because manufacturers are in a period of transition. The worldwide recession that began in 2008 left companies with vast amounts of overcapacity, but costs for materials and labor have continued to rise along with the standard of living in countries such as China and India. This means it's no longer effective to try to squeeze cost out of manufacturing by, for example, chasing lower-priced labor. To stay competitive, Idelchik says, companies need to move to "high-risk, high-payoff" manufacturing of advanced products and materials. However, he adds, such high-risk manufacturing requires an "ecosystem" of suppliers, equipment makers, and customers.




Chiang says his experience with A123 was critical in coming up with the new battery design. "The best way to do battery research is having started a battery company," he says. "Being close to the manufacturing, you recognize what can have an impact. It is the argument for why manufacturing is so important in these developing areas."