Chevrolet Volt Battery Maker LG Chem Michigan Misused Recovery Act Funds (w/video)

5 years ago by Jay Cole 26

According To Reports, LG Chem's Outdoor Area Is Very Well Maintained

According To Reports, LG Chem’s Outdoor Area Is Very Well Maintained (via WoodTV8)

Apparently having battery technicians clean the front lawn, watch movies, play Texas Hold’em, and read magazines (on the taxpayer’s dime), over making lithium battery cells is an inappropriate use of government funds. 

WOODTV 8 Originally Brought The Mismanagement To Light

WOODTV 8 Originally Brought The Mismanagement To Light

Who knew?

Well, the DOE does now, as the Office of the Inspector General has filed a report detailing the mismanagement of labor, and the misuse of government funds. 

As of now, LG Chem has drawn down $142 million in total of a $151 million dollar Recovery Fund award, and a yet to produce a single saleable lithium-ion battery cell.

The report states that “LG Chem Michigan inappropriately claimed and was reimbursed for labor charges incurred by a variety of supervisory and staff employees for activities that did not benefit the project. “

On the subject of actual battery production that was supposed to power the Chevrolet Volt:

“Based on progress to date and despite the expenditures of $142 million in Recovery Act funds, LG Chem Michigan had not yet achieved the objectives outlined in its Department-approved project plan.  For instance, even though the facility had produced a large number of test cells, the plant had yet to manufacture battery cells that could be used in electric vehicles sold to the public”

As a refresher, according to the DOE, the objective of  funding the LG Chem plant in Michigan was to design, construct, start up and test a production facility for lithium-ion polymer batteries, create more than 440 jobs, and produce enough battery cells annually to equip 60,000 electric vehicles by the end of 2013, with assembly beginning in 2012.

But instead of manufacturing cells for the Chevrolet Volt/Opel Ampera and Ford Focus Electric in Michigan, LG Chem instead chose to import cells from their facility in South Korea, saying they would evaluate opening the US facility when demand increased.

In 2012,  23,461 Chevrolet Volts were sold in the US in 2012, with 28,436 Volt/Amperas produced in Michigan.  Seperately, 685 Ford Focus Electrics were sold in 2012.

LG Chem's Michigan Facility - Apparently Home To Some Very Large No-Limit Hold'em Poker Games, But Not Battery Production

LG Chem’s Michigan Facility – Apparently Home To Some Very Large No-Limit Hold’em Poker Games, But Not Battery Production

Other points of interest from the OIG report:

  • Our review revealed that LG Chem Michigan inappropriately claimed and was reimbursed for labor charges incurred by a variety of supervisory and staff employees for activities that did not benefit the project. Through interviews with LG Chem Michigan management and other staff, we confirmed that employees spent time volunteering at local non-profit organizations, playing games and watching movies during regular working hours
  • Based on LG Chem Michigan employee revelations regarding work habits, we believe it is likely that the total amount of charges that included at least some non-productive work exceeded $1.6 million, about $842,000 of which was reimbursed by the Department in accordance with its cost-sharing arrangement for the project
  • Only about 60 percent of the production capacity set forth in the grant agreement was constructed even though nearly $142 of $151 million (94 percent) of the Department’s share of project funds had been spent. LG Chem Michigan officials estimated that the Department’s 50 percent share of the cost to complete the five production lines called for by the grant agreement would be $22 million, an amount that would significantly exceed the remaining funds available under the grant award. These same officials noted, however, that they had no plans to complete the remaining lines unless demand improved dramatically. We found that LG Chem Michigan had significantly underestimated labor costs and that this was a primary cause of its inability to complete planned construction

  • Project documentation prepared to support the grant award indicated that production of battery cells would transition from LG Chem’s South Korean facility to the Michigan plant beginning in 2012, assuming that demand grew as expected. LG Chem Michigan officials indicated that they had not begun production at the facility because demand for the Chevrolet Volt, the U.S. manufactured vehicle for which the plant was to produce battery cells, had not developed as anticipated.

  • Less than half of the expected number of jobs had been created to support the project.  The period of performance for the grant runs through May 2013. Yet, based on progress and current plans of LG Chem Michigan officials at the time of our review, the expected benefits of the project are not likely to be realized within the originally anticipated time frames.

    Employees At LG Chem's Newest South Korean Facility Enjoy Productive Employment In 2012

    Employees At LG Chem’s Newest South Korean Facility Enjoy Productive Employment In 2012

The report concludes that the problems identified occurred, in large part, due to grant monitoring issues with LG Chem Michigan and the Department.

“Notably, LG Chem Michigan did not fully realize the grant’s target goals, and the Department did not always take sufficient action to ensure adequate oversight of project progress and, in turn, protect the taxpayers $142 million investment in the project.

For instance, LG Chem Michigan officials told us that they made a decision to delay production of battery cells at the Michigan facility. LG Chem Michigan officials made that decision even though demand for the Chevrolet Volt averaged 1,955 vehicles per month in 2012.  That volume could have readily been produced by using the then built-out capacity of the Michigan plant. NETL officials commented that it was anticipated at the time the grant was awarded that the transition of production from non-U.S. sources to Michigan would occur; however, language requiring the shift in production had not been incorporated into the grant.

Thus, they asserted that the Department had no leverage to require the shift in production to the Michigan plant. Yet, until the shift in production takes place or some alternative use for the plant is developed, U.S. taxpayers will receive little direct benefit from a plant for which they provided up to half of the funding.”

Nutshell moment:  Its good to write things down, and possibly double-check that money issued is being spend appropriately.

Response: LG Chem management has since concurred with the reports findings, and its  recommendation and has indicated that it had taken and/or initiated corrective action to address issues identified in our report..and they gave back the $842,000 for the high price yard work.

You can read the whole 26 page report DOE report here.

Video (below):  High profile TV report from Wood TV8 that sparked the investigation

 

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26 responses to "Chevrolet Volt Battery Maker LG Chem Michigan Misused Recovery Act Funds (w/video)"

  1. evnow says:

    Let me see, 0.8M of the 142 M was inappropriate. What am I missing here ?

  2. BlindGuy says:

    So what is the minimum battery production number needed to get that facility running? This decision doesn’t look good to the US taxpayer and thus makes the: Clean Energy movement, EVs and the GM Volt (which has had too much bad PR already) look really bad. Surely LG Chem knew the risk of slower ramp-up. Bad PR can be much worse than losing a few beans in the short term. Get cranking here, in America!

    1. Jay Cole says:

      I guess that is the big question.

      With 29,121 total packs required in 2012 for the combined Volt/Ampera/Focus Electric production, that is a near 50% take-up of plant capacity (which is apparently not even tooled at this point for the full 60,000). You’d figure that would be suffiicient to get things started, but apparently not in LG’s opinion.

      1. cody says:

        Jay,
        I’m not a big fan of the TITLE of this article. Why do you feel the need to wrap GM up in this news? Did GM actually do anything wrong? Or maybe the better questions is: Why didn’t GM require LG to go to work providing batteries sooner?
        There is a real story here!!

        1. Jay Cole says:

          Hey Cody,

          No slight to GM intended. Honestly it was title as such because for many ‘non-hardcore’ EV/Volt-aficionados, they would have no point of reference for the story, or why they should be interested.

          Although, looking at the overall picutre, one could suggest it was GM’s over-ambitious projections of 60-120k Volts/year that first lead to this plant being built, then later contibuted to not being utilized as intended in this DOE program when sales did not materialize.

          GM is a very large, albeit silent, player in the way this unfolded. That being said, there is no specific fault in relation to the DOE on the part of GM, it was not them that applied for this program and/or failed to follow through.

          At the end of the day, it really is a site specific battery facility built for the Chevrolet Volt, so the title included the reference. I do understand/share your hesitation on the Volt being in the title.

          1. cody says:

            Thanks Jay! I think that is why I mentioned Chevy possibly being a part.. in another way. It’s all true I suppose.
            Last question:
            So is it really cheaper to import the cells from Korea than to produce across the street?
            I love the idea, btw of having the Fed rebate tied to local battery production in some way. I’m thinking $2000 as a good number. (Only a $5k rebate is available to cars with foreign sourced batteries.)

            1. Jay Cole says:

              Its a fair question, and I’m glad you asked. I’m still not 100% on board with my own title atm.

              I think given the scope of LG Chem’s facilities in SK, and the fact they have plant capacity already built up and available, likely more than outweighs the logistical costs over doing it “across the street”.

              In NA, they are looking at all the factory costs, and the paychecks to ‘up to 440 employees’ to pump out 30,000 packs/year.

          2. kdawg says:

            “At the end of the day, it really is a site specific battery facility built for the Chevrolet Volt, so the title included the reference”
            ——————–

            And the Ford Focus EV, but no mention of them? I’m surprised the Gov can’t prevent batteries coming from Korea, until Holland MI can’t make enough. Ehhh, all that free market crap. Seems like it should go out the window when there 142million invested. It also seems like it would be cheaper to build them in Holland, but why would LG do that if they are being told by the Korean government to keep the jobs in Korea? Makes me wonder if they are involved.

          3. backstroke says:

            Jay, sorry but I think you’re wrong re this LG facility being a site specific facility for the Volt. No company builds a facility, let alone a multi hundred million dollar one, with a single customer product in mind. That would be crazy. What would happen if the Volt was cancelled, would LG just close it down or mothball it? No, of course not, that was never the objective for setting up this facility.

            This facility was built to service the whole US manufacturing base, for cars, trucks, bikes, and any other product that will use this type of Li-ion battery.

  3. ClarksonCote says:

    More bad PR for EV’s, thanks LG Chem.

  4. Bloggin says:

    GM should just work a deal with Ford to supply them with batteries. Ford engineers and manufacturers right in Michigan.

  5. Herm says:

    easily fixed by making local manufacture of cells (not just packs) a condition of getting the Federal $7,500 tax credit.. also applies to Canada and Mexico to be nice to Jay 🙂

    1. Jay Cole says:

      ¡ viva méxico!

    2. Jim McL says:

      We bought two Think City EVs partly because the battery packs are made in Indiana. At the time, no other EV could claim US made batteries. It turns out that the Ener Del batteries might be the best chemistry balance in the industry for automotive applications, possibly due to their heritage at Delphi before being spun off to Ener Del.

  6. GeorgeS says:

    Yeh but the real question is what will happen going forward here. Personally I agree with Herm and LG should be forced to move Volt cell production to the US.

    However, what probably will happen is they will shutter the plant and then we just have more bad press to deal with.

  7. Anthony says:

    I’m confused.

    A while back (like 12-18 months at least), GM was quoted as saying that moving battery production to MI would dramatically cut the price of the batterires. They didn’t give an exact figure at the time, but it was estimated by us EV nerds as between $100-200/kWh (I believe GM said something along the lines of “more than one hundred dollars per kWh”). Most of the cost reduction was due to only having to ship the cells across the state, rather than half way around the world from S Korea in climate-controlled containers.

    Now, we’re in the position when LG cant even make them profitably? Did LG promise GM too low of a price for Michigan-made batteries? Did something change in how much the cells cost to make in Korea? Did shipping costs get cheaper? Did they decide to hold off on ramping up manufacturing if GM switches suppliers in the next few years for the second version of the Volt and other EVs/EREVs? Does LG plan on improving/changing the battery chemistry soon and not want to ramp production and then have to retool the plant?

    I have a billion questions I’d like to get answers to, but alas I doubt I’ll get an answer (not until after it happens anyways).

    Anthony
    2012 Volt – 375MPG

    1. kdawg says:

      Korean government? I’m not a conspiracy theorist, but makes me wonder. Also what if LG is worried that GM will beat them up on the price once they move production to Holland? Maybe GM and LG have some kind of agreement where if X batteries are required, production will move to Holland, and price will be reduced by Y amount?

      (yeah I only have questions too)

  8. Herm says:

    The market is glutted with cells now, driving prices down to unprofitable $500/kWh levels, supposedly

  9. Herm says:

    Perhaps GM could buy cells from Nissan?, new factory in Smyrna

    1. GeorgeS says:

      No perhaps Nissan could buy from the LG unit…….but that ain’t going to happen. The whole thing will consolidate and the fact that Nissan has 50 battery plants is not helping.

      1. evnow says:

        LOL – classic. Blaming Nissan’s 3 battery plants for LG’s misuse of DOE funds.

  10. evnow says:

    Thats the difference between Nissan & LG/GM.

    Nissan still went ahead with the battery manufacturing even though the sales numbers are less than projected.

  11. Kickincanada says:

    Everything about this situation just ticks me off. More fodder for anti ev. No matter what way you look at it that’s $140M+ and not a single pack into a production vehicle. Just ridiculous.

  12. backstroke says:

    The big issue with this plant it that the market as a whole for Li-ion batteries has not grown enough to make it viable. Add in competition not going LG’s way with customers like Ford using Panasonic cells in the C-Max and Fusion and you can understand why it remains in a pre-production state. If LG was to start up production now they would be largely dependent on GM, and could be held hostage to the demands of GM in order to keep it running.

    Give it time for the market to develop and grow some more and it will start up and this issue will be soon forgotten

  13. Cavaron says:

    Can’t they just produce as many cells as possible and sell some stock to private converters? A123 refused to do this, but they sold them to companys ins China which sold them back to privates in the US. A123 let this end-user market slip away for no good.
    And cheap cells would realy giving back something to the public which funded them.

  14. Herm says:

    A123 could not afford the liability of selling lithium ion cells directly to end users.. imagine the lawsuits!