Lithium-ion (Li-ion) car and grid storage battery manufacturer Ener1 declared bankruptcy in January after massive debt and limited revenues became too much of a burden for the fledgling company (client registration required) to shoulder. This event should come as no surprise to investors or the industry. Ener1 has been in the headlines several times over the last six months due to its failed investment in Think and its December 2011 delisting from the Nasdaq exchange (client registration required). This bankruptcy adds to the woes (client registration required) of the U.S. Department of Energy, which had provided Ener1 with a $118.5 million matching grant in August 2009. This recent news reiterates the fact that companies touting government support as a major feather in their cap may be enticing investors with false wares. In these cases, government funding provides just enough capital for a company to prove its technical viability despite failing commercially, teeing it up at a bargain price to larger players and investors in the market, much like Beacon Power’s recent fire sale to private equity firm Rockland Capital.
Ener1 is not the only company struggling within the crowded Li-ion battery space. On January 11, 2012, Altairnano Nanotechnologies (client registration required) was again warned by Nasdaq to get its share price above $1 or it will also be delisted from the exchange. Li-ion batteries must compete not only with each other, but also with the negative press that pounces on the slightest safety slipup (client registration required), including the Chevy Volt that caught fire (client registration required), and the evacuation at the new Saft battery manufacturing plant in Florida. As with many maturing industries, there will be many failures before a few winners emerge. Amidst a pending oversupply of Li-ion batteries and intense competition from low cost manufacturers in China, readers should be wary of Li-ion battery suppliers without a clear competitive advantage or a proven foothold in the market. Also, watch for Chinese companies blessed with deep pockets, government support, and no aversion to low margins. Many are eager to acquire valuable IP and assets from recently broke or struggling companies in order to rid themselves of the low-quality stigma attached to Chinese Li-ion batteries. Case in point: Boston Power’s recent move to China (client registration required).