Recharging Detroit (pg. 2)

And when Ford (F, Fortune 500) announced that its first plug-in hybrid will be coming in 2012, it revealed that the batteries will be manufactured by a French-American joint venture, Johnson Controls/Saft. France's Saft will provide the R&D, while Johnson Controls (JCI, Fortune 500) brings considerable manufacturing know-how. As the world's largest supplier of conventional lead-acid car batteries, Johnson Controls is smart to move into the rechargeable lithium-ion game. Still, the core technology used by the two biggest U.S. carmakers will be coming from the South Koreans and the French.

For America the ultimate irony is also the ultimate humiliation, and worse: Just as the electric car is finally arriving to save Detroit, the U.S. is poised to swap our dependence on foreign oil for a dependence on foreign batteries.

And yet there is a glimmer of hope. A host of small U.S. companies with odd-sounding names - Ener1, A123, Quantum Technologies, Altair Nanotechnologies, Tesla Motors, and ActaCell (backed by Google (GOOG, Fortune 500)) - are making significant progress toward solving the enormous technical and cost obstacles to using lithium-ion batteries for automobiles. These tiny, precocious firms insist there is still time for the U.S. car industry to stage a miraculous comeback. As Ener1 CEO Charles Gassenheimer puts it, "Right now, we're David with the slingshot."

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"I want to see my baby!" Gassenheimer is race-walking through his company's battery-manufacturing plant in Indianapolis, eager to see the new $5 million electrode-coating machine just being installed. Balding and cherub-faced, wearing a blue blazer, striped shirt, and gray pants, Gassenheimer looks out of place here in the gritty heart of auto factory country. A former hedge fund manager at Satellite Asset Management who came to Ener1 in 2006, he evinces an enthusiasm bordering on giddiness that is also peculiar in a region decimated by layoffs and shuttered plants.

But Gassenheimer believes he's sitting on a gold mine. With this factory and two others - one in nearby Noblesville, the other in Korea - he claims to have one of the largest production capabilities for lithium-ion car batteries in the world. Though Ener1 had revenue of just $7 million last year, Gassenheimer says that at full capacity (supplying 45,000 all-electric cars or 450,000 hybrids), the company's battery-making subsidiary, EnerDel, has the capacity to generate revenue of $700 million a year.

While Ener1 demonstrates the huge potential of this industry, it also embodies the obstacles. Today, EnerDel has only one contract with an electric-car maker - Think of Norway, which filed for the Norwegian equivalent of Chapter 11 in December, the third time Think has gone bankrupt in its troubled history. Gassenheimer rushed in to help arrange an emergency loan of $5.7 million in January, but Think still needs some $50 million to resume production of its Think City electric sedan in Norway and launch in the U.S. next year. (Think CEO Richard Canny says the company is close to finalizing a new round of financing.)

Ener1 (HEV) also shows how slippery the concept of an "American" company is in a global economy. The firm was founded in Florida in the late 1990s by a Russian physicist named Peter Novak and kept alive during its lean years before Gassenheimer arrived by a Russian paper mill magnate named Boris Zingarevich (who today indirectly owns about 40% of its publicly traded shares). Its COO is a brilliant Japanese chemist named Naoki Ota, and the CEO of its EnerDel subsidiary is a Norwegian marketing executive named Ulrik Grape. This company may be a mini-UN, with a big chunk owned by a Russian, but Ener1 remains the only U.S. company ready to produce mass quantities of its own electric-car battery cells on American soil.

"If you look at some of the other companies, EnerDel is well ahead in mass-production capability and has very good chemistry," says Khalil Amine of the Argonne National Laboratory, an Illinois-based U.S. government research facility. Whether Ener1 can ramp up production quickly - and whether its chemistry will hold up under grueling road conditions - remains to be seen. But right now it's the only game in town. Its main American competitor, A123, manufactures most of its cells in Korea and China. Although A123 has begun building a factory in Michigan, it won't be completed until the end of the year at the earliest and assumes the federal government comes through with $1.84 billion in loans. (Ener1 itself has asked for a $480 million loan to build a third plant in Indiana.)

So far the big carmakers have been reluctant to sign a major deal with even these promising American companies, not yet convinced they will be around for the years it takes to develop the battery, deliver mass quantities reliably, and supply parts to keep it functioning once the cars are on the road. That has created a catch-22: America's small battery makers can't ramp up production without high-volume orders, but Detroit can't place the orders until it is sure it has a reliable supplier.

Consumers, meanwhile, aren't buying many cars of any kind these days - never mind more expensive electric models. The Think City costs between $35,000 to $40,000 - considerably higher than the $29,000 average automobile price that analysts say electric cars must reach to become truly mass market. Ener1 says it could eventually knock 20% to 30% off the price of its $17,500 batteries with high-volume orders.

NEXT: Recharging Detroit (pg. 3)

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