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How Michigan battery startup Our Next Energy plans to conquer mass EV market

Posted By: The Detroit News on April 9, 2023.  For more information, please click here to read the source article.

The idea that would eventually become a business valued at more than $1 billion first struck Mujeeb Ijaz in the early days of the coronavirus pandemic when he — like many people — was spending a lot of time in Zoom meetings.

“I’m thinking a lot about, what am I actually doing? What am I accomplishing? Is this the right use of my time?” he told The Detroit News in an interview. “And then I’m kind of also simultaneously observing that the market of electric vehicles is emerging. And I wanted to be a part of that.”

Ijaz wrote down three problems, as he saw it, with the current EV market: Range, chemistry and supply chains. Months later, Ijaz — a former Apple Inc. and Ford Motor Co. engineer with decades of experience in the automotive industry — founded Our Next Energy, an energy storage technology startup dedicated to solving those problems.

The ambitions are high: double the range of EVs on the road today, go all in on a battery cell chemistry that is not yet widely used, and contribute to the buildout of the nascent U.S. EV supply chain — a goal increasingly considered a national security imperative amid China’s dominance in the space even as securing supplies remains a business necessity.

“My worst case scenario is I’ll leave Apple and I’ll need a job because this will fail,” Ijaz recalled thinking at the time. “My best case scenario is that I can make these three come true together, and it’ll become an invaluable company with the capability to grow into the U.S. battery supply chain.”

Now, nearly three years on, ONE has 10 customers, a product on the market and revenue on the books — plus the help of federal incentives designed to support exactly the type of work the startup is doing. The company, which just closed a Series B funding round, is preparing to launch production at a $1.6 billion battery plant in Van Buren Township next year. It’s expanding into the utility grid sector, with a product launching in 2025. And it’s developing a battery that targets more than 600 miles of range on a single charge.

All of this, Ijaz believes, is laying the groundwork for ONE to begin supplying passenger EVs in the coming years, just as federal policies, business strategies and consumer demand are aligning to create a mainstream market for plug-in vehicles. That market, he believes, will require vehicles that can seamlessly handle real-world conditions.

“That’s the market we’re going after solving,” he said from ONE’s Novi headquarters, “because that’s the mass market.”

Going all-in on LFP

Ijaz, a 1990 Virginia Tech graduate, first found himself in Michigan as part of the GM Sunrayce USA, which sent college students across the country in solar-powered cars. He opted to make a career out of EVs, landing after a couple of years at Ford, where he became known as “the battery guy.”

He left after 16 years there for battery tech startup A123 Systems before joining Apple, where he spent several years working on the tech company’s secret car project.

An EV enthusiast who owns several models across different brands and has a collection of early 20th-century electric cars in the lobby of ONE’s headquarters, Ijaz has long been a proponent of battery-powered vehicles. But he saw electric projects come and go over the course of his career, and only in the last few years saw automakers going all in on electrification amid Tesla Inc.’s success and tightening government mandates to phase out fossil fuel-burning vehicles.

Even now, he believes some auto executives may not be fully attuned to what he believes consumers want from an EV: enough battery range to avoid inconvenient, time-consuming charging stops on trips — especially in conditions that deplete batteries, like cold temperatures and highway driving speeds.

“The real-world range of an electric car that promises you 300 (miles) is about half that, or two-thirds to be best case,” Ijaz said. “And in that context, I decided that if we were to target 600 miles on a single charge for an electric car, that that would be enough range that we would actually make it past the market slowing down, and it would fully emerge.”

The Aries LFP battery, ONE’s first product, is making its way to customers in the coming weeks. The pack has 150 miles of range on a single charge and is geared toward commercial customers like delivery drivers. The Piston Group, which is a contract manufacturer for the Aries, launched mass production of saleable packs last month, and ONE is starting to generate revenue.

ONE is now prototyping the next-gen Aries II, targeting more than 350 miles of range for cars and light trucks.

That’s in preparation for ONE’s next big step, which is the start of production late next year at ONE Circle, a battery plant that is slated to have the capacity to produce enough cells to power 200,000 EVs annually by 2027 and to employ more than 2,100 people. The plant will initially produce the next-gen Aries battery, then in 2026 will add the Gemini platform that targets more than 600 miles of range. That product would incorporate two cell chemistries in a single pack.

All of ONE’s products are centered on the same cell chemistry: lithium iron phosphate, or LFP. To date, the automotive industry has primarily focused on lithium-ion batteries with nickel-cobalt chemistries that boost range. But there are ethical, cost and supply constraints with those materials. And battery chemistries that use nickel and cobalt tend to carry a higher fire risk.

“There’s a lot of potential for LFP,” said Sam Abuelsamid, principal research analyst at Guidehouse Insights.

LFP, he explained, has the advantages of lower costs, better safety and greater durability than nickel-rich chemistries. The downside is lower energy density, and thus lower range — but ONE and other companies are mitigating that by moving to a battery pack architecture that eliminates packaging and boosts density and range.

And ONE expects the hybrid design of the Gemini pack to have further advantages. It will rely primarily on LFP, but incorporate proprietary anode-free chemistry to extend range on longer trips.

“At the heart of our company, everything we’re doing is LFP,” Ijaz said. “But we don’t need to wait for the auto market on that. The commercial market is a much faster market.”

Not waiting for the ‘Holy Grail’

For all of Ijaz’s ambitions around transforming the EV experience, he says he is in no great hurry to enter the market for passenger EVs. For now, ONE is focused on customers in the commercial and utility grid sectors, where it sees a $7.5 billion revenue opportunity over a five-year period.

The startup has a $1.3 billion revenue target over the next three years, ahead of an eventual initial public offering.

“I’ve seen a lot of startups fail because they wait too long to get to the Holy Grail” of generating revenue, said Ijaz. “So what we’re doing is, let’s do LFP commercial, then LFP grid, then let’s transition to automotive, and then let’s get the automotive market to adopt us. But we’re not rushing it. We’re not going in and trying to pitch that we’re ready for automotive. Because actually, we do have a lot of work to do to stand up our investment, our infrastructure, our first factory.”

ONE started amid waning investor confidence in EV startups, as those that have gone public have been slow to produce revenue or products at scale. The result, noted Guidehouse’s Abuelsamid, is that many mobility startups have seen their stock prices plummet, cutting them off from fresh capital markets funding.

“If (ONE) can demonstrate, ‘We can do this here,’ and show how they can scale it up,” he said, “they’ll be more likely to start getting some of those big automaker contracts.”

Even in ONE’s few years in business, the dynamics of the battery market have shifted considerably. Backed by federal policy, automakers have accelerated their electrification plans and are increasingly embracing vertical integration. All three Detroit automakers have ownership stakes in battery plants; Ford is even building its own LFP battery plant in Marshall, Michigan.

Ford executives say introducing LFP batteries into their lineup will help contain costs and better meet the full range of customer needs: “LFP has a much lower cost structure — and quite honestly, the characteristics of the LFP battery aligns with our commercial vehicle business much better — higher density, you can charge it multiple times, less degradation,” Chief Financial Officer John Lawler said at a recent investor event.

Much of the battery investment by ONE, Ford and others has been driven by federal policy like the Inflation Reduction Act, which is aimed at boosting domestic production of EVs, batteries and other components, and from which ONE, among others, will get subsidies.

Since President Joe Biden has taken office, companies have announced some $210 billion in investments in the EV industry, according to a report commissioned by the Natural Resources Defense Council, putting the United States on track to attract nearly a quarter of all announced EV investments globally. Automakers and battery manufacturers have committed some $54 billion to build or expand 37 EV battery plants across the country.

Ijaz isn’t deterred by the stiffening competition, including from automakers he hopes to one day supply. Nick Twork, ONE’s vice president of business development and marketing, said the company has talked with “pretty much every large auto company,” in part because sourcing batteries from ONE would help automakers meet the criteria needed to qualify for IRA tax credits.

“I’m glad to see the OEMs embracing vertical integration because what it means is they’re building up expertise internally,” said Ijaz. “But there’s always going to be a make-buy decision. And OEMs will get deep vertical skill, followed by a pendulum settling into, what do we want to make, what do we want to buy?”

Abuelsamid estimated that some 1.5 terawatt hours of battery capacity will be needed in the coming years to support EV production in North America alone: “Right now, the battery plants that have been announced through 2026, get us about halfway there. There’s still lots of room for growth.”

Where Ijaz believes ONE can be competitive as a battery cell supplier because of advantages he thinks the startup will derive from its sourcing strategies: “We plan also to go deep on materials — not just the value chain of putting a cell together, but the value chain of creating the raw materials and the battery materials. We’re going to go all the way vertical ourselves.”

ONE is now in the process of developing partnerships to make cathodes. Eventually, Ijaz expects a division within the company to focus solely on materials.

“We don’t know where their (automakers’) decision-making will go,” Ijaz said. “But we certainly think diversification of supply chain and the industry growing and transitioning, is going to need companies like ONE, especially here in the U.S., to stand up manufacturing. And we think the OEMs will embrace that eventually.”