FRANKFURT (Bloomberg) -- Burning cars and bankruptcies have marred the market for batteries powering electric vehicles. That isn't deterring the world's biggest chemical maker BASF SE from investing in the space.
The German company is betting customers will flock to electric cars, using its chemical products to create a battery that will enable vehicles to run longer. BASF, with an annual 1.7 billion-euro ($2.3 billion) research budget, has made battery materials one of 10 areas it's targeting for growth.
"We are committed," Adrian Steinmetz, head of global business management at BASF's battery materials unit, said in an interview at the company's headquarters in Ludwigshafen across the Rhine River from Mannheim. "Having this long-term strategy is typical of BASF. It's the reason why this company has existed for 149 years."
The push underscores a willingness by CEO Kurt Bock to invest into a market where the payback may take time. Some rivals have dropped out amid sluggish demand for electric cars and image problems after fires broke out in some vehicles made by premium electric-auto maker Tesla Motors Inc. Israeli charging station developer Better Place Inc. filed for bankruptcy last year.
Germany's second-biggest chemical company, Evonik Industries AG, is seeking a buyer for its battery activities including a joint venture with Daimler AG. Six years ago, the company said it wanted to become Europe's leading producer of lithium-ion battery components. In October, CEO Klaus Engel said the company was abandoning the project.
"The electric auto market was expected to soar in the direction of the sky," Joachim Krotz, partner at advisory firm Oliver Wyman, said in an interview. "But all of that didn't come true. The increase of battery capacity is taking so long. They are still too heavy. They still lack power."
Siemens AG, Europe's largest engineering company, shuttered its electric vehicle charging business last year, citing slower- than-expected market growth. The Munich company had said in August 2011 it intended to become a global provider of systems and solutions for electric cars as part of a push into green technology.
BASF, which reports full-year earnings tomorrow, has said new and safer batteries with a higher capacity will boost the range of cars, helping the market for electric-vehicle batteries to be worth $20 billion by 2020.
"The battery can only be as good as the chemistry inside," Steinmetz said. "It's a very technically demanding field and you really need to understand the whole interplay between different chemical compounds."
Germany, Europe's largest car market, illustrates how the market for electric and hybrid vehicles, which combine an internal combustion engine with an electric motor, failed to meet initial expectations.
Five years ago, Germany set a goal for 1 million electric vehicles by the end of this decade. A McKinsey & Co. study that year foresaw an average annual 25,000 new electric cars being added from 2011 to 2014. The average number of new registrations in the first three of those years was just 3,720 annually. In January last year, less than 0.1 percent of the passenger cars on German roads were electric.
To become a major supplier for electric cars, BASF needs to challenge the dominance of Asian market leaders Mitsubishi Chemical Holdings Corp., Sumitomo Chemical Co. and Ube Industries Ltd. Those companies have an advantage in lithium ion technology, crucial in car batteries and helped by their proximity to the region's booming electronics, computer and phones industries.
"There is no battery industry in Europe anymore. It was destroyed because no one was interested in this mature old business," Hariolf Kottmann, CEO of Swiss chemical company Clariant AG, which makes lithium iron phosphate, a material for car batteries, said in an interview. He said Asian rivals have now displaced many European players.
The U.S. market highlights how difficult it can be to compete with Asian manufacturers. President Barack Obama is trying to promote an electric vehicle and battery industry in the United States via a $2.4 billion grant program to local companies.
Chinese rivals ultimately took over some U.S. companies and have received government support.
Obama's goal of having 1 million electric cars on the road by 2015, announced three years ago, now looks like "a stretch," U.S. Energy Secretary Ernest Moniz said Jan. 22 in Washington.
The U.S. National Highway Traffic Safety Administration last year started investigating battery fires in the Tesla Model S sedan. The electric-car pioneer has said it's also investigating the incidents.
Despite the controversy, demand for Tesla vehicles is starting to accelerate. The carmaker this month posted fourth-quarter results that beat analyst estimates and is gearing up for further growth with plans to raise Model S sedan production 56 percent this year and to build a battery plant.
To kick-start its electric-car battery business, BASF has bought four companies, set up a nickel cobalt manganese production plant in the U.S. and bought licenses from Mitsubishi Chemical. The company's sales of battery materials should rise to as much as 500 million euros by the end of the decade from about 100 million euros now, BASF predicts.
BASF, which aims to become one of the top three suppliers of battery materials by 2020, is also taking the battle for customers to the home market of its Asian rivals and this year opened a battery materials research and development center in Amagasaki, Japan.
The battery-materials unit already generates most of its sales in Asia, said Andreas Fischer, BASF's head of battery material research. While developing the business may be hard, the rewards will be great if the strategy pays off, he said.
"It's very exciting," Fischer said. "If it were easy, anyone could do it."