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Gasoline giant Exxon Mobil wants in on the hybrid market

01:00 AM EDT on Sunday, March 16, 2008

By RUSSELL GOLD

The Wall Street Journal

BAYTOWN, Texas — Exxon Mobil Corp., the world’s largest gasoline refiner, wants a piece of the hybrid-car market.

After filling automobile gas tanks for decades, the company has started looking under the hood. It’s betting that further development of a component it created for cell phone batteries can help improve a new type of battery that may eventually power most hybrid cars. If it’s right, Exxon could play a part in ushering in a new generation of hybrid and electric cars, lessening the world’s reliance on gasoline.

Exxon won’t make the actual batteries, but its scientists have developed a plastic “separator” film that is already a critical part of lithium-ion batteries. As these batteries become more powerful — and if Exxon can keep them from exploding — they are expected to make the jump into hybrid cars.

At first blush, Exxon’s embrace of “green” hybrid technology may seem surprising — especially for a company whose executives scoffed for years at the idea that fossil fuels were causing global warming.

But even as it hunts the earth for new supplies of oil and natural gas, Exxon has worked on developing alternative energy technology. The company, which has big plastic and chemical operations, isn’t keen on the long-term prospects for biofuels, but it is bullish on the hybrid market. It believes that these gasoline sippers will grab a larger share of new-vehicle sales than the federal government forecasts. “We are interested in good business opportunities, and that is what this is,” says Jim Harris, senior vice president of Exxon’s chemical company.

At the heart of Exxon’s effort is its belief — shared by many in the marketplace — that the current workhorse powering hybrid cars, the nickel-metal hydride battery, will soon be replaced by lighter, smaller and more powerful lithium-ion batteries. One thing holding that back: a history of lithium-ion batteries inside laptops overheating and bursting into flames.

Working in a building next to Exxon’s giant gasoline refinery in southeast Texas, Exxon researchers have developed a more heat-resistant separator film that is capable of tolerating temperatures up to 374 degrees, says Peter Roth, a researcher at Sandia National Laboratories. That’s about 85 degrees more than its competitors’ films can take. “It gives you a larger safety margin,” he says.

Exxon is no Johnny-come-lately to the lithium-ion battery market. An Exxon scientist first started talking about the idea of a lithium-based battery in 1976, and in 1991, its separator film was used in the first commercially produced lithium-ion batteries for Sony Corp. cell phones. Today, its separators are used in about 35 percent of the lithium-ion batteries used in electronic devices.

Exxon would like to have at least that much market share in the new generation of car batteries adopted by Toyota Motor Corp., Ford Motor Co. and other car makers. To achieve that, Exxon has dedicated 14 Ph.D.s in Japan, New Jersey and Texas to improving the technology. It expects to break ground soon on a $300 million manufacturing facility in Gumi, South Korea, according to people familiar with the plan. “We’re going to put our corporate muscle behind this and make it a reality,” says Harris.

Exxon faces plenty of competition. Polypore International Inc.’s Celgard unit and Japan’s Asahi Kasei Chemicals Corp. are among the companies working on competing technology. Cost — as well as safety and durability over a vehicle’s life — is a key issue, and Exxon’s product is relatively pricey, says Menahem Anderman, president of Total Battery Consulting in Oregon House, Calif. “It is a race and (Exxon) is one of the forerunners, but I would not guess where we will be in five years,” Anderman says.

Adding to the risks: The hybrid car market may not grow as expected, and Exxon’s technology could be eclipsed by other new approaches. Patents are starting to pile up for a solid electrolyte battery and for a ceramic membrane to keep the negatively charged anode from touching the positively charged cathode. Both technologies could make plastic separator film unnecessary. Nickel-metal hydride batteries could also be upgraded enough to overtake the improvements in lithium-ion batteries. “It will take years before we know,” says Tom Neslage, chief executive of Cobasys LLC, which makes automotive nickel-metal hydride batteries. Cobasys is half-owned by oil-giant Chevron Corp., which Neslage says has spent nearly $400 million since 2001 to develop the company.

But for now, most of the industry is betting on lithium-ion batteries. Anderman estimates a $1 billion market will develop for the batteries within the next 10 years. The separator-film component will represent about 12 percent of the total battery-pack cost.

Though that’s tiny compared with the crude-oil market, Exxon has compelling reasons to participate. Its separator is already very profitable. Even within the 34 percent return on capital boasted by Exxon’s chemical unit, the profit from the separator business is above average. And hybrid-car batteries are driving other new technology. Whichever company finds a way to make better vehicle batteries at a lower price will probably be able to grab a big part of the much larger portable electronics market.

Driving down the price of separator film remains a big stumbling block. The automobile industry wants separator-film suppliers to cut the price in half without giving up safety features, says Ted J. Miller, Ford’s senior manager of energy storage and research. Figuring out how to do that could require a hefty up-front investment, giving cash-rich Exxon an advantage. “I need people with deep pockets. Exxon Mobil has deep pockets,” says Miller.

Exxon talked about its aspirations in the emerging hybrid-car market — and potentially the plug-in electric-car market — for the first time publicly at the Electric Vehicle Symposium in Anaheim, Calif., in December. The oil giant’s booth there drew stares and more than a few snickers. “The irony was certainly not lost on us,” says Catherine Scrimgeour, who ran a booth near Exxon’s for Zenn Motor Co., which makes electric cars.