GRAND RAPIDS – A123 announced it is filing for Chapter 11 bankruptcy. The once highly-trumpeted manufacturer of lithium ion batteries will sell its automotive business to Johnson Controls. Why did this venture fail?
Life can be complicated and there may be a host of reasons. But it?s now obvious that the market is not there. The production capacity of Li-ion batteries significantly exceeds demand. One report estimates that the over-supply is 10-times demand.
This highlights a business fundamental: Know your market.
Did the industry get caught up in the dream? Maybe. The players ? and there are several ? are certainly well intentioned. Energy storage has great economic and environmental potential. The goal is good.
But it is an answer in search of question.
Consumers are not yet clamoring for the technology. They are concerned about the driving range of battery powered cars. Generally, consumers want more than 80-100 miles.
The market is saying by their absence that the technology is not yet compelling.
So far this year 17,345 Chevy Volts and Nissan Leafs have been sold. Not on pace to achieve the government?s goal of 1 million plug-in electric cars by 2015. This goal is a good ideal. Unfortunately, ideals don?t? sell products. It takes willing buyers. In business development the first action is to ?know thy market?.
Battery manufacturers are smart companies. They likely did their market research homework. As did their competitors. The result? We now we have too many producers pursuing too few buyers.
And government funding delayed the inevitable. I realize we probably have a chicken-and-egg scenario. But the subsidies have allowed the over-supply to continue beyond the point where the market would have sorted it out naturally.
JCI probably made a good business development move with A123. This acquisition will support JCI?s market share and positioning. And the company is big enough to ride the demand curve until it matures.
In the meantime time, this story provides a case study in real time. It offers a reminder that in business development strategy we must:
Conduct candid, objective market research
Avoid the temptation to become too enamored with our technology and ignore Item 1 above
I don?t like to see any company fail. And I hope the employees of A123 find a home in the JCI family. So let?s honor what A123 has tried to do by learning from their experience.
Know thy market. Understand your customers.
“Don Beery is Principal & Founder of BlendonGroup consulting based in West Michigan. His firm advises clients on business strategy, technology commercialization, and business development planning. He can be reached at [email protected]”
