At the April 18 meeting, the board lamented the fact that no U.S. company, and more specifically no Michigan company, had bid on the AATA’s request for proposals to replace the battery kits for its hybrid electric buses. But board sentiment was that a larger purchasing consortium for such kits might eventually be achieved through the newly-created southeast Michigan regional transit authority (RTA) – which includes the transit agencies in Washtenaw, Wayne, Macomb and Oakland counties. And that larger consortium might make it worth the while of a Michigan company that’s part of the state’s nascent battery industry to invest in the capability to produce bus battery kits.

The board delayed voting on the item in April due to the non-U.S. source – because board members wanted to be certain that federal funds could be used. The only bid had been from W.W. Williams of Dearborn, Mich., which distributes a product sold by Allison Transmission. The kits are fully assembled in Japan by Panasonic, but are programmed by Allison for use in the energy storage system used in AATA buses. So Allison was pursuing a Buy America waiver from the FTA – as its existing waiver had expired.

The AATA also inquired directly with the FTA. From the AATA staff memo on the results of that inquiry:

AATA requested clarification from the FTA on April 16, 2013 and received approval on June 4, 2013 from the FTA to purchase the battery refresh kits using grant funds. Approval from FTA came as a result of a determination that while the energy storage system (ESS) is a component of the Allison propulsion system, it is comprised of many subcomponents e.g., battery sub packs, relays, fuses, pre-charge resistors, etc. In the FTA’s opinion, components (ESS) of the propulsion system must be manufactured in the United States without regard to the origin of its subcomponents. In the FTA’s determination subcomponents may be of domestic or foreign origin. The purchase of the battery refresh kit is not a purchase of the entire ESS component, but a purchase of a subcomponent that does not require a waiver to be eligible for purchase using grant funds.

In the fleet of 80 AATA buses, 52 use hybrid battery technology.

This brief was filed from the downtown location of the Ann Arbor District Library at 343 S. Fifth Ave., where the AATA board holds its meetings. A more detailed report will follow: [link]

Sakti3 is requesting an abatement on $200,000 of real property improvements (electrical construction work) and $2.2 million of personal property (battery cycling equipment, thermal chambers, machine shop equipment, server system).

If granted, the abatement would reduce Sakti3′s annual tax bill for the new improvements by about $17,000 for each year of the abatement. According to city staff, the new real and personal property investments would generate about $22,500 in property taxes each year.

Previously, the council voted on March 21 to set a public hearing on the establishment of the industrial development district under which Sakti3 is applying for an abatement. And on April 4, the city council approved the establishment of the district.

This brief was filed from the city council’s chambers on the second floor of city hall, located at 301 E. Huron. A more detailed report will follow: [link]

Ann Marie Sastry, CEO and co-founder of Sakti3, at her company's booth at the Detroit auto show. (Photo by the writer.)

But Sastry and her company, Ann Arbor-based Sakti3, is far from “out in the cold.” They are in the auto business for the long haul and do not plan on being relegated to a basement booth forever. Eventually, if all goes well, her company’s battery technology will be powering the cars upstairs on the main show floor’s Electric Avenue.

What is it about the “Eureka moment” in her UM lab that prompted her to help found a company two years ago? What is it that turned the heads and opened the wallets of the Michigan Economic Development Corp. and cleantech venture capitalist Vinod Khosla, who chipped in $2 million out the gate? What exactly is her company’s battery technology?

Here’s her answer: “We’re interested in both materials and manufacturing technologies at Sakti3. So, we’re sort of looking at the intersection of those things.”

She pauses. She grins slightly, then says somewhat apologetically: “Sorry, I know that’s not good enough.”

This is Sastry’s polite way of saying that any further information is proprietary. She will only add that, “We are working on a manufacturing technology, and we think that’s one of the bottlenecks.”

It’s not surprising that she is guarded. The future of the auto industry is electric – at least, so says Michigan’s governor – and the future of electric plug-in vehicles depends on some big technological leaps in battery technology. If you think you have the secret sauce, you’re not going to tell everybody. Eventually, Sastry says, “We’ll all duke it out in the marketplace.”

Technology Transfer: From Academia

That kind of unabashedly capitalistic tough talk would have been practically unheard-of coming from a university professor in eras gone by – when academics were supposed to be in research for purely academic reasons.

David Cole, who heads the Center for Automotive Research in Ann Arbor, remembers the ’70s, when it seemed like a dirty little secret for an academic to commercialize a technology he or she developed. In some cases, Cole says, it’s about academic purity. In other cases, it’s jealousy. “Some people work on technologies that can be commercialized, others do not.”

Sastry says the technology developed in her lab could have gone a number of ways, but in the end she chose automotive battery development rather than pure academics.

“When the founders looked at some results we had, some technology we were looking at, they thought, ‘OK we could absolutely write more papers on this subject and go down that road and try to really focus on this as an academic exercise or we could really go down another road, which is to take what we have and see if we can build it in the steps required for commercialization.’ Both things are difficult. They’re just different.”

Sastry is fortunate enough to work in an academic culture where commercialization is not only no longer frowned upon, but actively encouraged – especially by UM President Mary Sue Coleman.

“The culture has totally turned around,” Sastry says, and not just at UM but in academia broadly.

“There is this space between what we do in our laboratories and getting into commercialization that we have to address,” Sastry says, speaking of a disconnect between the basic research done at universities and their transitions into tangible benefits for consumers. “And we have to help address it. It can’t be all just (marketplace) pull. There has to be some (academic) push.”

Sastry credits Coleman for pushing this cultural turnaround at UM. “Our president has been very specific. She believes that we need to enable tech transfer, and has funded more offices and centers to do that.”

But, she says, no matter how much help a company gets, it’s tough out there.

“It’s a high degree of luck, there’s a high degree of naïveté, there’s a high degree of optimism,” Sastry says, of founding a company.

“In our case, we want to put batteries in cars, so we have a lot to learn about cars.”

The university did not push her in the direction of automotive, she says. The University of Michigan has to rely on the “passion and vision of researchers” to determine where things are going to go. The university, as a whole, starts up very diverse types of companies, from nanotech to biotech to energy and materials.

Cole says that most technologies emerging from blue-sky research can go in multiple directions.

Technology Transfer: What Direction?

“I don’t think Sakti3 would see themselves as … a battery manufacturer,” Cole says. For that to happen, it takes extra push – a combination of public and private funding, in Sakti3′s case – to transition from idea to an actual company that makes things. And Sakti3 is still early stage.

“You see, the one thing that is true with intellectual property is that it’s actually fairly inexpensive,” Cole says. “It’s when you go to commercialize it, put in manufacturing capabilities, that it becomes a different story.”

To help move the “story” along in 2008, the MEDC designated Sakti3 as a Michigan Center of Energy Excellence and awarded the firm $3 million to accelerate its efforts to move to a prototype and to partner with the University of Michigan. This was added to an initial $2 million in financing from Khosla Ventures, led by Silicon Valley venture capitalist Vinod Khosla. Khosla has his hands in many alternative energy and automotive enterprises, including Fisker Automotive.

“We were really lucky to engage with Khosla Ventures almost as soon as we decided to do a company,” Sastry says. “There’s a real similarity in approach there, which is great.

“Working with KV is incredible because they really know what they’re doing. They really know a lot about building businesses. We think we know something about building batteries, so that’s really good,” Sastry laughs.

It’s a marriage that works out because there is only so much a bunch of academics can do. You need expert venture capitalists to take it to the next level. “In terms of the mechanics of a business, how to raise funds, how you price real estate, these are things that venture capitalists know a lot about,” she says.

Technology Transfer: Timing

So, when will Sakti3′s materials, or manufacturing technology, or process, or combination of all of them – she is still vague on that “proprietary” stuff – actually see the marketplace?

“We’re a few years off yet,” she says.

Five years? 10 years?

“A few years off,” she repeats.

Then Sastry decides to be somewhat more charitable with her information.

“To be very honest, it depends on a lot of things,” Sastry says. “Depends on how fast we run, depends on the dollars that come in, it depends on how successful and, sometimes, how lucky you are in doing the technology. So, there are a lot of variables. You know, starting a business is very risky.”

It also helps that Sakti3 has a development agreement with GM and – with her university hat on – she runs a development center called ABCD (Advanced Battery Coalition for Drivetrains) to help the automaker develop next-generation batteries.

Sakti3 currently employs fewer than 20 people in Ann Arbor, but Sastry expects that number to grow. And it will grow in Ann Arbor.

But what if, say, a Boston-based company eventually wants to buy the business, she is asked.

“It’s a fair question,” Sastry replies. “I mean, what we decided to do is to start a company to advance our technology to get it into vehicles. And so, where we’re at as an entity five or 10 years from now, I hope that we’re kicking out a lot of batteries that are going into really good cars. There’s a lot of steps between now and then.”

So, at this stage of the company’s development, Sakti3′s goals match those of the University of Michigan to commercialize its basic technology and the goals of the state of Michigan to make the state a center for next-generation automotive battery technology and manufacturing.

“The thing that’s nice about our situation is that the government of the region that’s most important to us – where our customers live – is also strongly supportive of what we’re doing,” Sastry says. “How often does that happen?”

Veteran journalist Howard Lovy has focused his writing the last several years on science, technology and business. He was news editor at Small Times, a magazine focusing on nanotechnology and microsystems, when it first launched in Ann Arbor in 2001. His freelance work has appeared in Wired News, Salon.com, X-OLOGY Magazine and The Michigan Messenger. His current research focus includes the future of the auto industry.