The tiny battery startup taking on Tesla on its home turf

By Dan Raile , written on July 29, 2016

From The Disruption Desk

Press access to Tesla’s $5 billion construction project in the Nevada desert, the Gigafactory 1, has at times been harrowing.

Last October, two members of the Reno Gazette Journal staff were roughed up by company security for having the audacity to photograph the site from a nearby hilltop.

Now though, Tesla and its widely-admired CEO, Elon Musk, find themselves needing a little help from the press. Investors are getting itchy, regulators inquisitive, and there are even signs that the general public may be questioning the unalloyed genius of the man at the top.

And so, this week, the company invited reporters for the BBC, USA Today, Forbes, Fortune, the Verge, Wired and several others to visit their new factory and, hopefully, take a little of the Kool-Aid back with them. Even the Reno Gazette Journal was on the list, and was encouraged like the rest to photograph from certain designated vantages.  

The plan worked. Immediately after the visit, variations on the same article appeared in the RGJ, the BBC, Forbes, Fortune, the Verge, Wired et al. Same quotes, same stats, same half-hearted cautionary inoculations against cynicism.

There’s a lot riding on the Gigafactory’s ability to meet its projections. Not only the prestige of executives Musk and Nevada Governor Brian Sandoval, who granted Tesla $1.25 billion in tax breaks to help lure the factory to its current site. There’s also Tesla’s fate, as a company and as a symbol of the current phase of the American economy. And there’s the parochial dream of a resurgent Reno, and the collective destiny of the human race on its home planet.

To read the reports which emerged from this week’s factory tour, goaded by the man himself, Musk intends to save humanity from the jaws of climate destruction by vertically integrating his battery supplier into his electric car manufacturing. Deserts have always been preferred backdrops for messianic hallucinations.

Musk generously countenanced a question and answer period at the end of the highly choreographed tour, though it seems reporters decided en masse to prod him for great proclamations rather than press him for details.

The celebrated man is betting his company on a very big factory and a significant economic shift, and who cares if an automaker co-locating with a parts supplier for ecomies of scale isn’t terribly innovative, and that all the interesting details remained behind a curtain?  

The Q&A does seem to have afforded Musk the opportunity to explicitly suggest he is this century’s Henry Ford, though none of the write-ups had the temerity to invoke Ford’s bungle in the Amazonian jungle in relation to Musk’s gamble in Reno.

* * * *

While Musk serenaded the press corps, I was in nearby Reno, on the receiving end of a lithium ion battery factory tour all my own. I was at the new headquarters of Dragonfly Energy, in a much more anodyne warehouse space by the airport, in the early stages of a retrofit. There was no security, no hustling workforce, no hovering communications liaisons. Just two of the four-person Dragonfly team and me.

Standing on the concrete floor of a plain quadrangular warehouse, empty save a few racks of sealed battery packs awaiting shipment, with a little imagination and modest encouragement from my hosts, I could see myself at the forefront of a Sino-Japanese race to reverse-outsource manufacturing advances onto American soil, and a global effort to reverse environmental disaster through technical innovation.  

Dragonfly’s CEO & CTO Denis Phares entered the lithium ion energy storage business through a side door. For twelve years he was a mechanical engineering professor, first at Texas A&M and then USC, specializing in the obscure fields of powder processing and aerosols. Frustrated by the prospects for raising a family in southern California on a tenured professor’s salary, he and his wife, a physician, pinpointed Reno as a place to pursue his nascent battery dreams, raise their kids and afford to live.

He formed Dragonfly in 2012 and joined the MBA program at the University of Nevada Reno, raising money from family and doing his research on the side in a rented lab space and in his garage. At UNR he met soon-to-be Dragonfly COO Sean Nichols, a gregarious and impulsive counterpoint to Phares’ circumspect nerdiness, sales to his science, with a stacked Rolodex in the RV and boat markets. The two settled on those outlets for an initial go-to-market strategy while Phares perfected his research and entered his products in competitions.

The drop-in battery packs Dragonfly currently produces can outperform traditional deep-cycle lead-acid batteries and are significantly lighter. The company’s packs are currently in use by the “solar hipster RV” company Homegrown Trailers, the electric scooter company GoPed, a number of Burning Man art cars, and the musical instrument amps of Pull the Plug Audio, which Phares’ band plays exclusively. No mission to Mars, but Dragonfly has courted a more organic cool factor.

This spring, the company got a major boost from a far-flung source, and overnight Phares’ ambitions to disrupt the young and burgeoning lithium ion battery industry began to look more promising. In April, the company closed a deal with Chinese battery manufacturer Dynavolt, the world’s largest producer of lead-acid motorcycle starter batteries, which provided $2 million for DragonFly’s R&D operations, allowing Phares to pursue his scheme for drastically reducing the cost of energy storage by inventing a new process of manufacturing lithium ion cells.

“The cost of storage is the biggest bottleneck for renewable energy,” Phares said. “Our process can reduce that cost by 50%, and it’s completely non-toxic.”

Down the road, Musk was promising 30% efficiency gains.

The making of the lithium ion cells accounts for Panasonic’s $1.6 billion presence at the Gigafactory, and a good deal of the factory’s immense footprint. Using traditional methods, their manufacture requires the use of acutely toxic, volatile, flammable solvents (and vast energy-hungry ovens and vacuums to evaporate those solvents) in order to coat metal cathode and anode strips with lithium compounds. Any one of those ovens will be larger than the entire Dragonfly warehouse.

The technique that Dragonfly demonstrated to Dynavolt, and which it will soon begin building equipment for in its quaint Reno factory, does away with the need for such solvents, ovens and vacuums, with drastic reductions in energy consumption and physical space required.

Dragonfly expects it will take two years for the results of its research to enter the factory floor – roughly the same amount of time Musk predicted Panasonic would need to develop its on-site lithium ion cell production to full capacity.

Phares said that he doesn’t view Tesla as a competitor, that down the road it could be a client and integrate the process he’s invented. The corporate missions dovetail almost completely: to reduce the cost of energy storage in order to hasten the uptake of renewable sources, proceeding from vehicular applications to integration with the wider energy grid.

They’ve both dedicated themselves to the goal of returning manufacturing operations stateside, with the participation of Asian partners, and sparking an energy revolution from Reno, near the only operating lithium mine in the U.S and a few hours by rail to the Golden Gate.

If Dragonfly and Dynavolt’s projections are met, it would mean that at moment the Gigafactory achieved its ambitious production goals in the world’s largest building under the guidance of the world’s premier tech hero, the size and expense of that operation could be rendered moot by an unheralded startup in an unassuming office park just a few miles away, making possible a leaner, more efficient plant. That would be a remarkable disruption.