Your country is falling behind in alternative energy technology. Your best companies run the risk of being left in the dust by fleet-footed foreign competition. It isn't that your government is filled with climate science deniers. What's your solution?
A classic one, especially favored by liberals and progressives, is called industrial policy. It's the idea of getting government to intervene, providing much-needed support to a flagging domestic industry, and/or directing investment towards promising new technologies and companies expected to be winners in the future.
Conservatives generally oppose industrial policy, but have been known to accept it when seemingly convenient.
You might remember a fairly recent example of it closer to home. The company was called Solyndra, a manufacturer of solar panels. It was a product of Silicon Valley, but somehow things didn't go well when the Obama Administration undertook a bit of good old fashioned "industrial policy" by investing. Some think it was a case of governmental fraud. I think it was a reminder that "the road to Hell is paved with good intentions."
Governments make good investments when it's things like highways and bridges, but they don't seem to be very good with emerging technology companies.
Notwithstanding disasters like Solyndra, at the moment the idea of industrial policy in alternative energy looks like a desirable solution in a surprising place – the German auto industry. Surprising because, after all, Germany's the home of Mercedes, BMW, and Volkswagen. Not exactly "slacker" companies! Except that the auto industry is quickly changing due to the rise of electric-powered vehicles. Lots of vaunted German engineering technology is suddenly less relevant in a world of "electrics".
The Germans realize they may have a problem. Last February Germany published a report titled "2030 National Industrial Strategy". Somewhat ominously, the report said, "if the digital platform for autonomous driving with artificial intelligence were to come from the USA and the battery from Asia for the cars of the future, Germany and Europe would lose over 50% of value added in this area."
These concerns are not unfounded. After all, the Chinese presently dominate battery technology, along with major players from South Korea and Japan. Tesla, the heavyweight in electric vehicles, relies upon Panasonic, which also happens to be Toyota's partner. LG Chem and Samsung SDI are major Korean players.
How should the Germans respond to such a challenge? Not surprisingly, some say it's time for some good old-fashioned industrial policy. In fact, the German government is creating a one billion Euro fund for German companies to develop batteries.
Is this a good idea? I don't think so.
Also in opposition is Ferdinand Dudenhoffer, a professor of automotive economics at the University of Duisburg-Essen. As reported by Fortune magazine in the 1 May 2019 issue, Dudenhoffer thinks the creation of the battery fund is mis-guided.
What is the right answer? While independently developed, we have the same advice for the Germans: if you're behind in your technology, change the rules of the game.
The Chinese, Japanese and South Koreans appear to have a solid lead in battery technology and manufacturing capability for batteries. How could the Germans – or anyone else for that matter – change the rules of battery game? Two ideas to change the rules come to mind, and neither involves governmental industrial policy.
Answer #1: come up with a better technology.
Lithium ion batteries – the current standard for electric vehicles – aren't necessarily the best solution. For one thing, they don't perform well in cold weather. So the obvious answer is, develop the next new technology for batteries. At least one company – Sila Nanotechnologies – is taking Dudenhoffer's advice and focusing attention developing better batteries out of different materials. They're also pursuing funding from a source other than government, leading to the second answer. Another such company is Farasis, based in Silicon Valley.
Answer #2: get funding from venture capital, not the government
The German government's proposal to provide a billion Euro fund for battery technology sounds like a lot, until you consider that US venture capital alone in 2018 raised 130.9 billion, more than 100 times the amount of the German fund. Of course, that's the amount raised for all venture capital, not just batteries. The point, however, is that huge sums are available in the private sector for innovative technology.
In 2018, venture capital and private equity firms invested more than $ 1.3 billion in energy storage technologies according to Wood Mackenzie.
Chinese and other Asian investors see the potential of energy storage. For example, China's Skio Matrix raised $159 million for lithium-ion battery and electric vehicle development
It's apparent there is a lot of private money available for the right battery/energy storage investment opportunity. How could the German companies – or anyone else for that matter – create something new and better to challenge the current dominant players?
One emerging technology is what's called the solid-state battery. A San Jose, California company called QuantumScape has such a battery. Volkswagen has already invested in the company. As reported in a company publication, "Solid-state battery cell technology is seen as the most promising approach for the next-but-one generation of e-mobility. This battery technology has several advantages over the present lithium-ion technology: higher energy density, enhanced safety, better fast charging capability and a much smaller space requirement."
Fast charging of batteries is clearly an important way in which an upstart competitor might challenge the incumbents. As recently reported in Greentech Media, David Snydacker of Dosima Research notes that today, most fast-charging EV's can reach an 80 percent charge in 30 to 40 minutes. But he points out that Porsche's recently announced Taycan EV can charge to 80 percent in 15 minutes. According to Snydacker, "Presumably, this 15-minute charging is being done with conventional lithium-ion cells that have been made especially think so that the lithium can move more quickly from the cathode to the anode during charging. The tradeoff with this approach is that these thin cells contain less active material and therefore have lower energy density."
How can you achieve such rapid charging without sacrificing the energy density? The answer may be something called silicon anodes, which have much greater density than graphite.
Focusing on new materials and technology, as well as funding from places like Silicon Valley, should be a far more fruitful opportunity for the German automakers that believe they're falling behind. Not only that, but they'll avoid all of the baggage that typically comes with government funding.
It's not that getting venture and angel funding will be easy – far from it – but it's clearly quite plentiful if someone can come up with a truly great idea, and truly great ideas are what will be necessary to advance battery storage.
Once again, a governmental solution – in this case, the German government fund – sounds like something that will help advance efforts to get better "green technology", until you realize that the far better solution will be to rely upon new technology, as well as far more plentiful venture funding.
Industrial policy sounds like a good idea – until you dig into it and realize there are far better alternatives. We clearly need technology if we're going to solve the greenhouse gas problem. Government could help a great deal to underwrite the necessary research, but if we ever hope to commercialize that research, governmental industrial policy is probably the worst choice we could make.
Auto titans of Germany, please pay attention to Professor Dudenhoffer!
