The U.S. government's effort to create an electric-vehicle battery industry suffered a setback last week when one of the companies it funded as part of this effort saw its parent company file for bankruptcy protection. Battery maker Enerdel had been awarded a $118.5 million grant to build a lithium-ion battery factory in Indiana as part of a $2 billion grant program for electric-vehicle component and battery manufacturing; its parent company is Ener1.

Ener1 hopes to emerge from bankruptcy, and says Enerdel will continue operations during bankruptcy proceedings. Yet its difficulties point to the challenges of creating a new industry: at least for now, there are too many companies chasing too few contracts for making electric- and hybrid-vehicle batteries.

Demand is expected to grow over the next few years as government regulations and incentives push automakers to roll out more battery-powered cars, and as technical and manufacturing advances make batteries cheaper. But for now, U.S. battery makers are competing in a tight market. Those that win key contracts—or that have large amounts of funding—will likely survive the next few years, while others could collapse.