Battery Maker's Fall Fuels Criticism of Federal Energy Investments

The mysterious story of the battery startup that promised GM a 200-mile electric car.

At the end of November 2012, Atul Kapadia and Sujeet Kumar hosted the staff of their startup company for a holiday lunch of Mexican food at a Palo Alto, California restaurant. For days, the pair—the CEO and CTO, respectively, of a lithium-ion battery company called Envia Systems—had awaited an email from General Motors.

It was to contain a deal rare to an industry newcomer—a contract worth tens and possibly hundreds of millions of dollars to provide the electric central nervous system for two showcase GM models including the next-generation Chevy Volt. Untested small suppliers almost never get in the door of the world’s major automakers, which regard them as too risky to rely on. But GM was won over by what seemed to be the world’s best lithium-ion battery—a cell that, if all went well, would catapult the company to a commanding position in the industry with a middle-class electric car that traveled 200 miles on a single charge and rid motorists of the “range anxiety” that disquieted them about such vehicles. GM would have the jump on the high-end Tesla S, the only other major model with that range but one that would cost much more. For Envia, the contract could lead to an IPO that would make both men rich.

But the talking had gone on so long and with such uncertainty that neither man had even told Envia’s staff scientists of the impending deal. Even if they felt more confident, they could not have said anything, since such news could affect GM’s share price. Word had leaked around the Envia lab anyway. An edginess hung over the lunch.

Kapadia’s cell phone rang as he drove back from the holiday party. It was General Motors: Senior management had finally signed the documents. They were on their way by email. Kapadia turned off the phone but tried not to let on.

Back at Envia, situated across the bay in the industrial city of Newark, company employees gathered in the conference room for a regularly scheduled office meeting. Kapadia stood before some papers. He said it was the company’s first licensing deal, one involving the biggest and most prestigious possible customer of all—General Motors.

“Just to let you know this is not my achievement. This is your achievement,” the CEO said. “And I am signing on behalf of you.” The room erupted as Kapadia bent over and initialed the papers. Envia’s three-dozen scientists and business staff sounded like 200. They cat-called and screamed. The administrative staff jumped up and down.

A year later, the deal is in tatters, GM has accused Envia of misrepresenting its technology, and a document suggests why the carmaker may be right. The startup’s unraveling is a blow for GM as it transitions to a new regime next month under CEO-designate Mary Barra, setting back its ambitions in the potentially gigantic future electric-car industry. It also risks making Envia, the recipient of several small federal grants, another punching bag for critics of US government funding of advanced battery companies.

Envia meanwhile is mired in two angry civil suits and the two executives are at daggers drawn, with Kapadia accusing Kumar of fraud and intellectual property theft, and Kumar dismissing the allegations as the rants of an ousted executive who performed badly. Envia “was an illusion,” alleges Michael Pak, the plaintiff in an IP theft suit against Kumar. “While the illusion is there, you can sell the company and run away. But illusion doesn’t last forever.”

The Great Battery Race

Four years ago, the US and China set in motion a race for dominance of electric vehicles. At the cusp of two crises—the collapse of Detroit and of the global financial industry—lithium-ion batteries and electric cars seemed among the likeliest chances for driving the kind of fast economic growth that the high-tech and semiconductor industries had led in the past. President Barack Obama declared that the US would have one million electric vehicles on the road in 2015, and China vowed to accomplish the same. Both envisioned besting Japan, which had established an early lead with Toyota’s Prius, along with consumer-product juggernaut South Korea.

Central to Obama’s calculus was the creation of a lithium-ion battery manufacturing industry, an aim that Congress primed with $2 billion of direct stimulus grants and an additional $400 million for Arpa-E, a funding unit for frontier innovation within the Department of Energy. First invented in 1800, batteries are an old technology, but the financial stakes should anyone crack their confounding physics have resulted in waves of unusually motivated scientists, industrial leaders and politicians. A breakthrough in batteries could not only allow cars to go farther, but smartphones and emerging wearable devices such as smart watches to last longer, and solar and wind generators to better store the power they produce.

Read the full story on Quartz.