Ener1 sees hybrid battery costs halving

LOS ANGELES (Reuters) - Ener1 Inc will be able to cut the cost of batteries for hybrid electric vehicles by 50 percent once its lithium-ion technology amasses scale, Chief Executive Charles Gassenheimer said on Friday.

The company, which has yet to sign a supply agreement with a major auto manufacturer, also said it expects to secure two new battery development deals by the end of this year. Those could eventually turn into mass-production agreements.

Ener1's lithium-ion battery unit, EnerDel, is supplying batteries to Norway's Think Global for the Think City all-electric vehicle, to be sold in Europe later this year.

Existing hybrid cars, including Toyota Motor Corp's Prius, use nickel-metal hydride batteries. Lithium-ion technology, however, is seen as key by automakers and suppliers to extend the electric-only range of hybrids. The Tesla Roadster electric sports car, which is in initial production, and General Motors Corp's Chevrolet Volt plug-in hybrid, due to be released in 2010, both depend on lithium-ion.

In a phone interview, Ener1's Gassenheimer said that assuming the price of oil stays at about $100 a barrel, a 50 percent drop in battery costs means owners of premium-priced hybrids would break even on their investment after less than two years of ownership, versus seven or eight years currently.

"We can cut the cost of the battery by 50 percent and I believe that can be passed onto the consumer," Gassenheimer said. "I also believe that we can bring down the break-even to under two years, which would obviously be very favorable because that would be within the three-year lease that is a popular choice for American purchasers of automobiles."

Gassenheimer said for costs to come down by half, production of lithium-ion batteries would have to be in the hundreds of thousands.

"We need to see a meaningful up-tick," he said. "But the important point of this here is the demand side of this equation doesn't seem to be the problem."

Demand, he said, is "off the charts" in Europe and Asia.

"The amount of activity from U.S. auto manufacturers is low, but rising," he added.

Ener1 this month acquired the stake of EnerDel it did not already own from bankrupt auto parts maker Delphi Corp. Ener1 is looking for a new joint venture partner, Gassenheimer said, though he was happy to wait until the right partner comes along.

In the meantime, EnerDel is in talks with more than 24 auto makers and suppliers and aims to secure two new development contracts by the end of the year.

"I'm targeting substantially bigger car companies than a company like Think for the two development contracts," Gassenheimer said.

A development contract would come before a major supply agreement, he said, and could potentially lead to finding a new joint venture partner.

"It seems to be logical to date for a while before we get married," he said. "I don't need to do a deal tomorrow."

With two more contracts, Ener1 aims to start bringing in cash in two years. "It is our desire and hope to make that turn to free cash flow positive in 2010," Gassenheimer said.

Ener1 shares were down 3 cents at $7.44 in afternoon trade on the American Stock Exchange.

(Editing by Braden Reddall)