EnerDel poised to get jolt of stimulus juice

EnerDel has generated lots of hype since its 2004 founding, and not much else. But the locally based maker of next-generation
batteries for hybrid and electric cars finally appears poised to deliver the goods.

Within weeks, EnerDel expects to receive notification that it’s getting as much as $480 million
in financing under a U.S. Department of Energy program aimed at fostering advanced vehicle manufacturing.
The growth plan laid out in the application calls for boosting employment from 150 now to 3,000 within
five years.

"The
feedback we have gotten has been very favorable," CEO Ulrik Grape said of the application. "We expect to be among
the groups announced."

Then there’s another $2 billion in grants the Obama administration has set aside to help turn the
United States, long a battery-making also-ran compared with Asia, into a leader. EnerDel last month applied,
but isn’t saying how much it sought.

"In general, there is enough money out there" in various programs, said Kent Furst, a battery analyst for Freedonia
Group in Cleveland. "EnerDel is a big enough player that I would imagine they are going to get a
substantial chunk of it. I don’t think they have to worry about being completely shut out."

EnerDel is among a growing roster of companies
around the globe pinning their hopes on the production of automotive lithium-ion batteries, which are
lighter and more powerful than the nickel-metalhydride batteries used in the Toyota Prius and other hybrids
now on the market.

Lithium-ion
batteries already are used in cell phones and other smaller devices, but they can be prone to fire. Technological
advancements have laid the groundwork for their safe use in heavier-duty applications, including cars. That, along with global
efforts to scale back reliance on pollution-spewing internal-combustion engines, may swell the lithium-ion battery market
from $911 million last year to $9.1 billion in 2015, according to Electronics. ca, a Quebec-based research firm.

The U.S. stimulus money has fanned interest
further. Michigan, for instance, is providing up to $400 million in aid to spur construction of factories
and establish the state as a battery-making hub.

Indiana Commerce Secretary Mitch Roob is bullish on EnerDel but questions huge state outlays.

The Indiana Economic Development Corp., which
he oversees, has awarded EnerDel up to $7.12 million in tax credits contingent on adding jobs. The company
already has operations on the northeast side of Indianapolis and Noblesville and hopes to add a third
Hoosier plant.

"I
think the industry, relatively speaking, is in an immature state," Roob said. "Throwing enormous amounts of money
at fledgling organizations probably isn’t the greatest idea."

But even without an avalanche of incentives, EnerDel is well-positioned, analysts say, in part
because it has a leg up on rivals. It is the only U.S. maker of lithiumion batteries for vehicles that’s
already launched commercial production, albeit on a small scale. Other applicants for stimulus money
have yet to open plants.

"They are a real company, with real employees. They sell things to people. It is not a pipe dream," Roob said.

Obstacles remain

Still, EnerDel–a unit of Ener1 Inc.
of New York City–faces substantial challenges. For starters, the offshoot of Delphi Corp.’s Kokomo-based
electronics division is tiny compared with some of the heavyweights it’s competing against.

Then, there’s the fact that EnerDel hasn’t yet snagged a deal to become a supplier for a Big Three
U.S. automaker.

General
Motors turned to South Korea’s LG to supply its Volt electric car. Meanwhile, Ford has teamed with Wisconsin-based
Johnson Controls and France-based Saft, and Chrysler is working with Massachusetts-based A123 Systems.

EnerDel, meanwhile, has relied on smaller deals,
not all of which have unfolded as hoped. Late last year, its biggest customer, electric-car maker Think
Global of Norway, ran out of cash, just as EnerDel was preparing to send batteries.

The Norwegian company says it is close to lining up funding. Grape said he is optimistic EnerDel
will be making batteries for Think by the end of the year.

In May, EnerDel signed a letter of intent to supply Fisker Automotive, a California company that
plans to make $88,000 luxury cars. This month, EnerDel announced a pact to provide batteries for a San
Francisco-area transit system’s buses.

Such deals are key to building credibility, analysts say.

"What they need to do seemingly is get one of those to be relatively successful," Furst
said. "That would be their path to bigger things in the industry," including possible Big Three
contracts.

Grape noted
that EnerDel already does work for the Big Three as part of the U.S. Advanced Battery Consortium, which works
with domestic automakers to develop technologies.

"We do not feel shut out," Grape said of the lack of a Big Three supply agreement. "In
no way do I rule out that we would have a great opportunity to do business with those companies in the
future."