The auto industry’s rapid embrace of lithium-ion batteries for future electric vehicles is fueling an oasis of investment for Ann Arbor in the midst of the economic desert that’s drying opportunity in Michigan.

Ann Arbor’s scientific contributions to the battery development race are evident in the success of researchers and business executives in landing enormous amounts of government funding and private capital to accelerate the technology.

A123Systems, a startup with strong ties to Ann Arbor, received $249.1 million in grant funding through the federal stimulus package in an announcement Aug. 5 in Detroit. The announcement was coupled with additional grants totaling some $2.4 billion, including more than $1 billion for Michigan operations.

Nonetheless, observers were shocked that University of Michigan startup Sakti3, an Ann Arbor-based battery company, did not receive any funding - which is perhaps attributable to its youth in the market.

For its part, A123 is expected to hire some 5,000 workers at a battery plant in Livonia and will also open battery centers in Romulus and Brownstown.

Ann Arbor SPARK officials tried unsuccessfully to lure the company to open a battery plant in Ann Arbor, where A123 maintains a research presence led by Maria Thompson.

Chris Rizik, an Ann Arbor venture capitalist and chairman of Detroit-based NextEnergy, said Ann Arbor’s fingerprints on A123’s success are noticeable.

A123 in 2006 acquired Ann Arbor-based tech startup T/J Technologies, which was founded by U-M engineer Levi Thompson and his wife, Maria, in the early 1990s.

“It’s pretty clear that Ann Arbor has been a key addition to A123, and I think a lot of their success has been derived from the work that T/J did before them,” Rizik said.

University expertise

U-M’s long-held battery expertise has established the university as one of the most significant global experts in such technology. And the university’s early commitment to battery technologies is paying off.

One of its startups, Sakti3, is drawing global attention for its high-level partnership with General Motors on battery technology.

That’s at least partly why some local executives were quietly grumbling that Sakti3’s $15 million battery grant application was snubbed in this funding round.

Sakti3 CEO Ann Marie Sastry, widely regarded as one of the world’s foremost battery experts, declined to discuss her company’s application. General Motors CEO Fritz Henderson, asked whether he was disappointed that Sakti3 did not win funding, also declined to comment.

Sakti3, which recently received $15 million in private funding from its investors, is still eligible for future government grants. Sastry praised the government’s commitment to electric vehicle technologies.

“This is a huge day of support for vehicle electrification,” she said.

Doug Parks, senior vice president of new market development for the Michigan Economic Development Corp., said the state would continue to invest in “companies like Sakti3.” The state has awarded some $700 million in tax incentives to new battery operations run by companies such as Dow Chemical, Johnson Controls, A123Systems and LG Chem subsidiary Compact Power.

Sastry praised the government’s support of GM, which received about $240 million in direct grants.

The funding for GM comes after President Barack Obama’s auto task force publicly questioned the value of the extended-range electric Chevrolet Volt program in a report earlier this year.

“What you see is their supply chain is being supported, so as they execute on the Volt, they’re also being supported to build packs, build cells and create the infrastructure around the drivetrain of the future,” Sastry said.

Michigan and batteries

In a speech in Detroit, U.S. Vice President Joseph Biden cited statistics estimating that the U.S. market for advanced plug-in hybrid and electric vehicles would increase to between $10 billion and $20 billion by 2020. He said the U.S. lithium-ion battery market could be worth $16 billion by 2020.

SPARK CEO Michael Finney said the critical mass of auto research and engineering operations in Ann Arbor and southeast Michigan shows the region has not lost its reputation as the industry’s knowledge center.

“Michigan has been the leader, and I think will probably remain the leader, in transportation research in particular for the foreseeable future,” Finney said. “Even though we’ve been devastated with our manufacturing plants, if you look around the landscape, the R&D operations that are here are just incredible.

“Virtually every name for autos and transportation in the world is here, so there’s no doubt in my mind that this is a wonderful vindication for Michigan as a leader in transportation, and particularly transportation of the future.”

E-mail AnnArbor.com's Nathan Bomey.