How many absorbent glass mat batteries do you expect the industry will sell worldwide?
Thirty-five million batteries a year by 2015, primarily for original equipment. [AGM batteries] will start making their way into the aftermarket, but you won't see a huge aftermarket in 2015.
Last year you predicted that 70 percent of all new vehicles would have AGM batteries by 2015.
That's for Europe. I don't believe we've talked about a sales estimate for North America, which will be substantially less [than Europe] but still significant. In North America, [automakers will adopt fuel-saving strategies] that require [better] energy storage. That will drive our customers to AGM batteries.
Such as start-stop systems? Regenerative brakes? Other technologies?
U.S. regulators recently toughened lead smelting emissions standards. Will this drive up Johnson Controls' production costs?
It will have an impact on cost, and we will talk to our customers about helping us with that. It's going to cost [all manufacturers] something. For us it's going to cost a couple of dollars per battery.
Let's talk about EV batteries. Last year, Johnson Controls ended its joint venture with French battery maker Saft to produce lithium ion batteries. Why?
This will allow us to pursue [nonautomotive] markets. We wanted to control our own destiny. To get [economies of scale], we needed access to other markets outside the auto industry.
That partnership provided EV batteries to Mercedes, BMW and Ford? Will you keep those customers?
Yes, and some commercial [vehicle] customers, too. We have some EV customers in China, and we've got other customers that we can't talk about publicly.
Will lithium ion batteries generate major earnings for you any time soon?
A mass market for EVs is still a long way off. That's why we don't spend a lot of time talking about all this.
Recently the CEO of Continental AG predicted that electric cars won't generate big sales for another decade. Would you agree?
Yes, I would. In fact, the EV market may be even further away than that.
What about hybrid-powered vehicles?
Hybrids are still only 3 percent of the market. [To design a hybrid] you still have to make huge platform changes and add a whole lot of cost, because of the electric motor and all the other components.
So when it comes to a payoff for lithium ion batteries, you've got to be patient and have deep pockets?
Absolutely. That's exactly right. That's why we don't take a high profile every time we win a contract to produce three dozen EV batteries.
Do you expect a shakeout of lithium ion battery suppliers?
The suspects are pretty easy to figure out, as well as the likely survivors. We're going to be in it, because we're an automotive battery company. Other folks will have to decide if they want to wait for a payoff. And some [companies] just won't be able to afford it.
Nissan, Toyota and other automakers have partnered with various suppliers to produce lithium ion batteries. Are you afraid Johnson Controls will be frozen out?
These things are happening, but there is a high risk. The design of lithium ion batteries isn't stable yet. You have a lot of innovation, a lot of engineering and a lot of development. So you're going to see these joint ventures form, and re-form, and reshape. The products will continue to evolve at a very rapid pace.