China Beckons for Green-Energy Startups

Many in the U.S. have an interest in getting clean-tech ventures off the ground. Among them are the government, capital markets, industry, and science labs. But China seems ready to do more on every front to make such projects happen, and to do it right now—without red tape or concern about economic turmoil.

Leading-edge battery maker Boston Power appears to have come to that conclusion. The company is set to move to China, where the government is helping to cut the firm a $125-million deal that no one else is likely to match. The deal could leave the company poised to be a part of what could be a mushrooming market there in electric vehicles. “This is really the next chapter for us,” says Christina Lampe-Onnerud, who founded Boston Power in 2005.

Lampe-Onnerud, a former star technology consultant at Arthur D. Little and top scientist at Bell Communications Research, has been much lauded in the world of high-tech green startups, thanks to Boston Power’s innovations in the chemistry of lithium-ion batteries, and to the success the company has had in selling the resulting higher-capacity, faster-charging batteries to Hewlett-Packard for laptops.

Boston Power seemed even hotter in 2008 when Lampe-Onnerud announced she was setting her sights on producing batteries for the electric-vehicle market. But this market has been slow to materialize and highly competitive, pitting Boston Power against other high-flying startups, including A123 Systems, based in Waltham, Massachusetts.

In 2009, Boston Power failed to win a substantial loan guarantee from the U.S. Department of Energy that would have financed a Massachusetts factory—the company currently manufactures via Taiwanese partner GP Batteries. That same year, a deal backed by the Swedish government to help put the company’s batteries in electric vehicles from foundering Saab went nowhere.

The new deal should put Boston Power, which has raised nearly $200 million in funding, in a better position to compete for at least a foothold in what is expected to eventually be a large global market for electric-vehicle batteries. The deal was set up by GSR Ventures, based in Beijing and Palo Alto, California. GSR has more than $1 billion under management and is investing mostly in high-tech startups doing business in China. Neither GSR’s managing director, Sonny Wu, nor Lampe-Onnerud would provide details on the exact breakdown of the new financing, but both confirmed that the $125-million value represents a mix of private equity and Chinese-government grants, low-interest loans, and financial and tax incentives. 

The equity investment comes from venture-capital firms Oak Investment Partners and Foundation Asset Management, which are previous Boston Power investors, as well as from GSR. And the $125 million might not be all there is to the deal, hinted Lampe-Onnerud. “Even more will unfold over the next six months,” she says.

Lampe-Onnerud says the company will soon break ground on a new plant near Shanghai that is expected to turn out 18 million battery cells a year, about three times the company’s current capacity. And while the company is retaining some R&D capabilities in the U.S.—it is headquartered in Westborough, Massachusetts—most of its engineering operations will be based near Beijing, and the company is laying off about a third of its 100 U.S. employees. GSR’s Wu is becoming chairman of Boston Power in the deal, essentially taking the reins from Lampe-Onnerud, who says she will remain on the board and will continue to work closely with the company, but will not move to China. The company is currently looking for a CEO to replace Keith Schmid, who took over the slot in February from Lampe-Onnerud.

Lampe-Onnerud says the company was driven to strike a China deal because the country has demonstrated an intention to use generous incentives and funding to push its clean-tech markets, and its electric-vehicle market in particular, versus the shakier support in the United States. “China, by far, is the biggest market for us, and this was a chance to get to profitability very quickly,” she explains. “We would have loved to manufacture here, but every entrepreneur in this business who wants to stay in the U.S. will have to make some tough choices.”

Wu seconds the notion that China’s willingness to throw government resources at electric-vehicle growth makes the country increasingly hard to resist for startups in the industry. The Chinese government has already started building a large network of vehicle-recharging stations in major cities, he says, and has stated goals to get at least 300,000 electric vehicles on the road within two years, goosing the market with incentives worth more than $15,000 per car. “Being in China has become a necessary and sufficient condition for success in electric vehicles,” he adds. “U.S. startups are feeling they need to be in China for this market in the same way that Israeli high-tech companies in the early 1990s felt they had to be in the U.S.”

Marianne Wu, a partner at Mohr Davidow Ventures with experience in Asian markets, also agrees that China is likely to prove irresistible to a growing number of startups in the electric-vehicle and other clean-tech markets. The fact that China is simply buying more cars and just about everything else due to its rapid industrialization, along with its lower manufacturing costs, are reasons enough to focus operations there, she says, adding that any government help with financing is icing on the cake. “The Chinese government seems willing to provide large incentives to companies in industries that it views as strategic, to foster these industries through infancy,” she says. “EV batteries appear to be one of them, along with renewable energy in general.”

Besides, Wu says, a company that focuses its operations on China to follow the market doesn’t necessarily become “a Chinese company.” “Increasingly, we see companies trying to be nationally ambiguous,” she notes. “In China, they present themselves as a Chinese company, and in the U.S. as a U.S. company, reaping benefits in each case.” For example, U.S. electric-car manufacturer Coda Automotive and Chinese battery maker Prudent Energy both boast strong ties to, and identities in, the U.S. and China.

Boston Power seems ready to do the same. “Boston Power is still a U.S. company,” says Wu. “It’s just becoming a global company now, taking advantage of a market opportunity and government support in China. When the U.S. is ready to expand its EV market, we’ll be here.”