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EV boom sparks new supply base in Michigan

Crain’s Detroit Business
Nov. 29, 2021
Kurt Nagl 

The multi-billion-dollar commitments of automakers and their suppliers to an electric vehicle future has spurred a battery-powered gold rush in Southeast Michigan.

Vehicles with a battery core as opposed to an internal combustion engine require a new kind of supply base and pose a unique set of challenges, from combustibility and safety issues to longevity and range concerns.

The supplier with a solution stands to cash in on the industry’s new direction. Many are hoping to seize on the opportunity by expanding their scope of business and placing big bets on products and services.

Automakers are poised to spend more than $300 billion to shift production to EVs over the next five years, according to consulting firm AlixPartners LP. General Motors Co., Ford Motor Co. and Stellantis NV have said they aim for up to 50 percent of new car sales to be EVs by 2030.

“You can always look at any disruption as an opportunity, and now is really a good time for a small supplier startup and also nontraditional companies usually outside the supply chain to enter into the game,” said Tingting Yan, professor of global supply chain management at Wayne State University. “All the OEMs and big tier ones, they are forced to think about how they need to restructure their existing supply base.”

Among the EV opportunists is Wei Wu, an entrepreneur who built a $100 million-a-year business and is banking on battery chemistry for the next chapter of growth.

His company, Ann Arbor-based Pacific Industrial Development Corp., started in 1992 as an importer of rare earth metals from China. It has grown into a major manufacturer of catalyst chemicals for the automotive and petrochemical industries.

Its next pursuit is solving one of the EV’s most worrisome problems: the potential for batteries to overheat and burst into flames. “Those are really critical things – to solve that safety issue and maintain the cost and also increase the battery cycle life,” Wu said.

GM’s EV production has been plagued by the issue. Other automakers including Volkswagen, Ford and BMW have dealt with similar problems.

A common cause of fires in lithium-ion batteries is when material from the battery’s two main parts, the cathode and anode, come into contact. Pacific Industrial is developing a ceramic-like, flame retardant material, whose composition is kept secret for competitive reasons, that is applied to the thin film separating the two, theoretically preventing that from happening.

Wu is confident in its application. Pacific Industrial this month opened a $2 million advanced battery materials lab in Ann Arbor, where a half-dozen Ph.D.-level employees are focused on developing the material. It could be the ticket to millions of dollars in new revenue — potentially $200 million in the next couple of years, Wu said, given the rapidly growing market.

The global market size for EV batteries is expected to grow from $27.3 billion this year to $155 billion in 2028, according to market research firm Fortune Business Insights.

“There’s a lot of players in those market segments,” Wu said of battery cell and pack supply. “In our area, this is still a niche market. It’s not very crowded.”

Wu’s battery material business is in the R&D phase and not generating significant revenue, but the company is engaged in joint development agreements and collaborations with local OEMs and startups. The company has several patents pending and expects the material to go to market within two years.

“People haven’t put a lot of effort in this area, and we think we are one of the leading players, actually,” Wu said.

American Battery Solutions, one of the new players in battery manufacturing, is seeing big growth and return on investment. The Orion Township-based battery maker started in 2019 with 12 employees and has expanded to 200 employees with an expected revenue of $50 million next year.

CEO Subhash Dhar is projecting $500 million in sales by 2025 and $1 billion by 2028 because, according to him, the market is ripe for the taking.

“It’s not a crowded space at all,” Dhar said. “There are a lot of people trying to get into this space but there’s not a whole lot of competition because to be in this space, you need three elements. You need the component supply agreement with suppliers, you need customers and you need the know-how to connect the two.”

Funding is another major factor. ABS is owned by principal investment fund KCK Group, which has invested $200 million in the company to date.

Most of the company’s sales are from battery supply deals for buses, delivery trucks and industrial equipment. Another prong of business is stationary grid-connected battery solutions, such as battery storage facilities for utility companies.

ABS declined to name its customers, citing nondisclosure agreements, but said it has around 15 clients with long-term deals.

Dhar said the company’s 120,000-square-foot plant in Michigan is focused on prototype production and testing, while its 180,000-square-foot plant in Ohio handles mass production. He said full-scale production of battery packs for buses and trucks is scheduled to start in the third quarter of 2022. He anticipates hiring another 100 employees in Michigan in that time frame.

Entrepreneurs are also finding new ways to plug into the EV boom. The Biden administration’s recently signed infrastructure package included $6 billion for companies in the EV space. That’s helped sparked development in areas from new battery technology to charging solutions.

The EV charger market is expected to grow from $17.6 billion this year to $112 billion by 2028, according to Fortune Business Insights.

William McCoy left careers in the real estate and automotive dealership industries in hopes of carving out a piece of the EV charging pie. McCoy moved to Michigan from Washington, D.C., two years ago with his wife Marissa McCoy, assistant general manager at Heidebreicht Chevrolet in Washington Township in Macomb County.

“I had a passion for EVs, but I also realized the infrastructure wasn’t there,” he said. “Instead of me trying to create an EV charger, I decided to tackle the hardest issue, which is installation.”

The McCoys invested around $9,000 to start Current Dealers LLC, an electrical contractor and service provider for EV chargers. In the past six months, the company’s handful of employees have installed more than 100 residential chargers and made sales of around $250,000. McCoy said it is targeting dealerships and grocery chains for larger growth and is expecting upward of $10 million in revenue next year.

“This need for EV chargers came about because dealers ended up in a situation where OEMs are saying, look you got to get yourself ready and prepared,” McCoy said.

Investing in EVs is not without risk and should be done in a measured fashion, especially for big automakers, which still get most of their money from the sales of traditional engine cars, Yan said. At the same time, playing it safe isn’t a winning strategy.

“It’s very risky,” she said. “Whenever you’re doing innovation, that means you invest a lot and you get a little out of it.”

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