Stepping lightly into green-car market Indy motor maker, a player on the hybrid landscape, takes a measured approach toward EVs
By Ted Evanoff
Posted: October 4, 2009.
From an obscure industrial park on the city's Northwestside, Mathew Johnston faces a decision that could mean jobs in Indianapolis or jobs 8,000 miles away on the coast of China.
Johnston, the chief executive officer of Light Engineering, gets to choose the production place for electric motors -- devices that would power part of the new wave of autos funded by the U.S. government's unparalleled green campaign.
Few companies in Indiana stand to gain as much from Washington's $27 billion green-car war chest as Light Engineering, an Indianapolis-based electric motor maker backed by 21 patents, a nanotechnology trade secret and the deep pockets of Silicon Valley real estate tycoon Carl Berg.
But here's a surprise for anyone who asserts that Indiana always loses jobs to China. Johnston, an outspoken CEO who recently opened Light Engineering's first factory in China, doubts he'll import the motors.
What is more likely: Light will produce the motors in Indianapolis, but it probably will not be a huge production run. He figures America's green-car campaign in the next few years will implode.
"It's smelling a lot like the dot-com bubble to me," Johnston said. "I haven't seen a business plan I believe in yet.''
President Barack Obama's dream of 1 million plug-in hybrid cars on American roads by 2015 has started a stampede for the $27 billion in green-car development funds being doled out by the U.S. Department of Energy and the White House.
Light is not among the Indiana companies that already have received loan commitments totaling $400 million from Washington, although the motor maker stands to gain business as a supplier to truck makers such as Navistar.
Johnston said he believes the high-tech batteries are the weak link at the heart of the nation's green-car campaign. No company has ever mass-produced affordable lithium-ion batteries on the scale now required by the auto industry, he said.
And what's more, few in the bevy of startup electric-car ventures with names such as Coda, Fisker, Miles, Tesla and Think have road-ready cars that satisfy the U.S. government's rigorous crash-worthiness standards.
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"I think this all-or-nothing approach in plug-in hybrids is just wrong,'' Johnston said.
Rather than bet the company on green cars, Johnston figures the auto industry could account for 20 percent of Light's revenue, though that could include commercial trucks.
More than half of Light's current revenue of $8 million a year stems from the Pentagon and part of the former General Electric works in Fort Wayne owned now by Regal-Beloit, a producer of motors for commercial use.
Light's own growth plans suggest as many as 1,000 employees worldwide, including about 300 in Indiana, and global revenue of $300 million in five years, Johnston said. That's up from 35 employees today in Indianapolis and 17 in China.
He didn't rule out making the motors in China because he thinks America's green-car campaign is bound to founder. He plans to make the motors in Indianapolis largely because, he says, China no longer is a good place to produce sophisticated components for the U.S.
Shaving a few dollars on labor is insignificant because there is not a lot of low-wage labor necessary to produce the motor, he said. Much of the cost is tied up in engineering the product and buying high-tech production machinery.
"It used to be cheaper to do business in China," Johnston said. "Now it's getting more level. The balance is changing. If you don't have a lot of labor content in your product, you're no better off manufacturing in China than in the United States."
Light, a maker of generators and motors, opened its Chinese factory in 2007 at Shenzhen in a joint venture with Dong Shen Motors. Near Hong Kong's massive seaport, Shenzhen is considered a prime spot for shipping to the United States.
Motor subassemblies consisting largely of the copper wires wound on the base could be sent over from China, although Johnston said the plant will chiefly supply business in China, particularly a motor for an electric truck planned by JAC Motors of China.
Johnston already is thinking about how to cut expenses in Shenzhen as the Chinese government tries to boost wages and living standards for workers. In China, Light hands over its entire payroll to a government manager in place to ensure foreign employers don't abuse workers, Johnston said.
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As part of the routine way of doing business, the manager collects an administrative fee, disburses wages and uses the remainder of the payroll to pay for a worker dormitory and cafeteria.
Under the government's watch, wages have doubled to more than $200 a month; and throughout industrial China, apartments are beginning to replace dorms, raising payroll costs. What also pads the costs is the government's insistence on creating jobs. Johnston figures he carries a payroll with 20 more employees than the plant actually needs.
Light pays a 17 percent value-added tax to China on the goods it makes, and faces shipping costs that have risen at least 30 percent in recent years.
Now, Johnston is considering ending Light's tie with Dong Shen when the joint venture expires in a few years and setting up a plant owned only by Light deep in central China. There, cities are hungry for jobs, and government agencies are offering incentives such as rent-free plants and subsidized housing for workers.
Just because Light does not expect to bring over the motors from China doesn't mean other U.S. companies will back off from imports. Lost in the talk about the extraordinary effort launched by Washington to develop the next generation of fuel-efficient cars is the location question faced by manufacturers.
Obama's green-car campaign aims chiefly at cleaner emissions and less reliance on oil imports. Critics say it has little to do with creating work in Indiana -- where 200,000 industrial jobs have vanished since 2000 -- or anyplace else in the nation.
Some labor economists and analysts suggest Washington has fallen short by not setting up a specific public policy linking the green-car initiative with job creation in the United States.
"It gives us an opportunity to have an intelligent industrial policy that relies on markets but also underscores the fact that the government has a key role to play in research and development,'' said Harley Shaiken, labor analyst at the University of California-Berkeley, noting that Detroit's reliance on Asian and European R&D for green cars is pumping up research abroad at U.S. expense.
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Components can be made in America or made more cheaply abroad and imported. Only loose domestic content rules are in place. That has set off some extraordinary vehicle proposals and partnerships.
Henry Paulson, the former Goldman Sachs executive who recently led the taxpayer bailout of Wall Street as U.S. Treasury secretary for President George W. Bush, has invested in Coda Automotive, as has Goldman Sachs, notes the trade magazine Green Car Journal.
Coda plans to assemble a $52,500 electric car to be sold in California and equipped with car bodies and lithium-ion batteries made in China.
Johnston said the green-car boom promises to be a boon for companies overseas.
"As a manufacturer, I can't disagree with companies that want to import from China," Johnston said. "But as an American, we need to rethink it."
Indiana's electric car industryHere's a look at companies that are part of Indiana's fledgling electric car industry. Several have received grants from President Obama's green car initiative.
EnerDel
Enginers from GM Delco-Remy and its successor, Delphi, help staff this lithium-ion battery venture housed in Indianapolis on Hague Road. The EnerDel name comes from the founding partners, Ener1 and Delphi. Delphi is out of the picture now. EnerDel has applied for a $480 million federal loan to construct a battery plant and separately received a $118 million matching grant in President Obama's green car initiative.
Remy International
Indiana's last standing piece of the old GM Delco-Remy empire, this independent business made the defunct GM Guide headquarters in Pendleton its own. Remy, now the largest auto-parts maker based in Indiana, was instrumental in developing GM's 1990s' electric car, the EV1. Remy received a $60 million matching grant in the Obama administration's green car initiative.
Bright Automotive
The plan: launch the Bright Idea, a plug-in hybrid work van powered by lithium-ion batteries recharged by a wall outlet or the small onboard engine. Founder John Waters was a GM Electronic Data Systems engineer from Texas recruited to GM Delco-Remy's EV1 car program. Bright has applied for a $35 million federal loan to construct a plant.
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Indy Power Systems
It is starting with electric golf carts. But this startup has ambitious technology. Former GM Delco-Remy battery chief Bill Wylam, a key figure in the EV1 program, is a board member. Steve Tolen, ex-GM Electronic Data Systems, is the founder. Former EV1 battery pack engineer Bob Galyen is the chief operating officer. The key: a multiflex meter engineered by a pair of Rose-Hulman grads, Quentin Kramer and Andrew Hintz. Kramer had been chief engineer on the Terre Haute school's 1999 solar-power car team inspired in part by GM's EV1. The meter can send incoming power to a powerful lithium-ion battery for long-term storage -- say the electricity created by braking -- and parse the power out as needed to a cheap battery supplying the drive train. Its first use has been on electric golf carts.
Tawas
When GM broke up Delco-Remy, the Anderson battery business went to GM Delphi, which later sold it to Milwaukee supplier Johnson Controls. Left over was the invaluable material analysis lab in Anderson. Bob Galyen, the ex-Delco-Remy engineer, took over the lab. He runs a battery consulting business built around it.
iPower
This Anderson power generator evolved out of Delco-Remy and California electric car pioneer AeroVironment. Once Delco-Remy was dissolved, successor Remy International launched iPower, which makes electricity and hot water in big engines to supply buildings and shopping centers. Spun off by Remy, iPower is headed by Michael Hudson, the former GM executive who became vice chairman of jet engine maker GM Allison Gas Turbine, now part of Rolls-Royce in Indianapolis.
Delphi Kokomo
Known for decades as Delco -- GM's radio maker -- this electronics center was spun off with Delphi. Long distracted by parent Delphi's lingering bankruptcy, the Kokomo center still employs a formidable engineering corps and makes computer chips. GM agreed this summer to bring Delphi Kokomo back into GM. Received $89.3 million matching grant in Obama's green car initiative.
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Allison Transmission
Once the center of GM's hybrid expertise, this Indianapolis division joined with Delco-Remy, and later Delphi Kokomo and Remy International, along with Purdue University and the U.S. Navy operation at Crane, to produce hybrid systems for work trucks and city buses. It still makes the systems. Owned now by investors Onxy and Carlyle, Allison teamed this spring with Delphi Kokomo and diesel maker Cummins on a fledgling enterprise to market systems jointly for work vehicles. Received $62.8 million matching grant in Obama's green car initiative.
Cummins
The Columbus-based diesel maker shot ahead of rivals in engineering clean diesels for new federal emissions regulations and is now hiring staff for a hybrid venture.
Energy Systems Network
This new offshoot of economic developer Central Indiana Corporate Partnership is trying to galvanize the Indianapolis area's green technology business. One of its first projects is the Allison-Cummins-Delphi marketing program.
Altair Nanotechnologies
Based in Reno, Nev., this lithium-ion battery maker opened an Anderson plant to draw on the old Delco-Remy workforce. When problems developed on the proposed Phoenix electric car, it refocused on long-term energy storage. Financiers from Al Yosuf, a commercial firm in the United Arab Emirates, hold two board seats. Altair has applied for federal loans.
Emcon
This is what remains of an old Columbus mainstay -- Arvin. Grown huge on car muffler production, Arvin was acquired by Meritor, the new name of Rockwell International's old truck-parts business. Dogged by financial woes, ArvinMeritor spun off the Indiana works, including the Columbus technical center. Known now as Emcon, the Columbus lab engineers diesel emission products.
Light Engineering
Silicon Valley real estate mogul Carl Berg helped form Light in California, and relocated it to Indianapolis to be near the old Delco-Remy contingent. LE alumni are employed by Bright. It has applied for federal loans.
Crane
Quiet, secretive even, the Naval Surface Warfare Center at Crane, west of Bloomington, is a U.S. Navy facility dedicated to research. Battery technology takes center stage at this sprawling 4,000-employee base.
Magna E-Car
This little producer of electronic drivetrain components in that old GM town, Muncie, came out big in Obama's green car campaign, landing a $40 million matching grant.
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