Automakers Seek Profit in Electric-Car Batteries

Companies such as Toyota, Tesla, Daimler, and Nissan foresee large revenue in supplying electric-vehicle parts and technology

By Josie Garthwaite

When Toyota Prius sales sank more than 40% last May compared with the same month a year earlier, the automaker blamed it on a global battery shortage. But while the 7% drop in fiscal 2009 sales Toyota (TM) forecast this week has less to do with batteries and more to do with the global economy, part of Toyota and other automakers' recovery could have everything to do with supplying parts and technology for all-electric and plug-in hybrid vehicles.

Most electric vehicles now in the works remain at least a year away from production, and further still from profitability. But a growing number of automakers in Europe, Japan, and the U.S. are betting that the energy storage component—whether lithium-ion or nickel-hydride—will become a lucrative sideline in a next-generation automotive industry. Moves by companies including Toyota, Daimler (DAI), Nissan (NSANY), and Tesla Motors, which aim to supply third-party automakers with battery packs and chargers, may represent some of the first signs of real revenue in the high-tech vehicle market.

As one of the only major automakers to produce its own batteries, Toyota could have an advantage in an electrified vehicle market if battery supply fails to keep up with increasing demand. On the one hand, it could keep the technology for its own use and let other automakers struggle with the shortages Toyota experienced last year. But according to Executive Vice-President Masatami Takimoto, Toyota sees an opportunity for new revenue through selling battery packs to rival plug-in hybrid makers. It's not alone. Nissan said last month that it plans to roll out enough batteries to equip 200,000 electric and hybrid vehicles annually within the next several years (2011 or later) through a joint venture with NEC Global.

Tesla to Supply Batteries to Daimler

Competition for a piece of the next-gen auto supply pie is not limited to big industry players—not least of all because the Energy Dept.'s Advanced Technology Vehicles Manufacturing incentives program has made grants and direct loans available for making batteries and other components for electric, hybrid, and plug-in hybrid vehicles.

Silicon Valley startup Tesla Motors, maker of the luxury electric Roadster sports car, has drummed up business with Daimler for its battery packs and chargers. Under an agreement revealed at this year's Detroit Auto Show, Tesla will supply the German automaker with components for a 1,000-vehicle test fleet of electric Smart cars scheduled to hit U.S. roads in 2010—the startup's first such deal with a third-party manufacturer.