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Summary
Ford’s electric vehicle ambitions may have spluttered so far, but its new energy business could keep the carmaker in play. It is betting heavily on grid batteries that could serve multiple purposes—and keep its electric mobility ambitions alive.
Ford has finally hit upon an electric strategy that shouldn’t lose money. The key element is that it doesn’t involve vehicles—not for now, anyway.
Ford’s stock, a habitual water-treader, jumped almost 14% on Wednesday, its biggest gain in over six years, on news that the Detroit stalwart had found a way to tap into the AI boom—sort of.
Last week’s formal launch of Ford Energy, a grid-battery business, has stoked hopes that the company can benefit from the insatiable demand for energy from data centres powering artificial intelligence (AI) tools.
As with other old industrial firms including Caterpillar, which has discovered a seemingly boundless new client base for generators in Silicon Valley, Ford is pivoting to the hot new thing.
It’s a sound move on several fronts, not least of which is that it helps to keep Ford’s electric vehicle (EV) dreams alive.
Ford Energy arises phoenix-like from the ashes of the company’s existing EV battery manufacturing site in Kentucky. This was part of the now defunct joint venture with South Korea’s SK On, impaired and taken over by Ford as part of a mammoth $19.5 billion write-down of its EV business. Spending $2 billion to retool, Ford plans to produce up to 20GWh of battery capacity a year, with deliveries beginning in 2027.
To put that in context, the leading US manufacturer of batteries for energy storage, Tesla, can produce about 46GWh a year at its facilities in California and Nevada.
Ford’s Model e division bled money even before congressional Republicans dealt the US EV market a heavy blow by removing federal tax credits for new vehicle buyers. Ford continues to develop a new, lower-cost EV truck platform that it describes in transformative terms, although the recent departure of storied former head Doug Field struck a dissonant note.
Salvaging something from the wreckage is sensible. Grid batteries, which retained their tax credits, are a growth business.
US demand is expected to double by 2030 to more than 100GWh, according to Bloomberg NEF. The current crisis in PJM, the country’s largest electricity grid, centres on the difficulties of building enough power plants to supply new data centres quickly and cheaply.
With gas turbine orders backed up, solar twinned with batteries offers one way to both get power quickly and offer backup and flexibility benefits to data centre owners and struggling grids alike.
Capturing a bit of that AI aura for Ford’s stock, currently taking a beating from concerns around high petrol prices and tariffs, helps, too.
The fact that Ford is licensing the underlying technology from CATL, the world leader in grid batteries, is another huge help. It lends credibility to Ford’s pivot, given the company’s EV struggles, and lets it get going relatively quickly. It should also help with economics; even after paying a licensing fee, this could be a roughly $600 million EBIT business within a few years, according to Morgan Stanley estimates.
Such projections rest on a host of assumptions about AI uptake and that complex political beast known as the US power grid. The fact that Henry Ford’s car company is suddenly entering the market in a big way rather suggests that, like any hot segment, competition will put pressure on margins sooner than expected.
Yet any positive contribution will be welcome given that the Model e division is forecast to lose an average of about $4 billion a year at the pre-tax line through 2028, according to consensus estimates.
Moreover, there are strategic benefits, too. In one sense, Ford is travelling the same road as Tesla but in a different direction. Tesla’s energy business grew out of its EV business; the company didn’t even split out energy as a separate reporting line until the end of 2016. For Ford, however, its energy business offers a way of keeping its EV options open during a tumultuous time.
It needs those options since, despite US President Donald Trump’s protectionist and pro-gas-guzzler policies, electrification continues to expand around the world, with the Iran war’s oil-market disruption providing renewed impetus. Reducing the cost of batteries is critical to EVs winning the affordability argument versus internal combustion engines and, as China has demonstrated, scaling up battery manufacturing capacity is key to this.
There is an added potential bonus. Legacy US auto manufacturers could use Chinese know-how to help catch up in EVs. Replicating China’s own model by fashioning Sino-US joint ventures in the US, controlled by domestic companies, offers one way, albeit one that draws political opposition. Ford’s licensing deal with CATL doesn’t rise to that level, of course. But if it can be shown to work at scale, and without controversy, it may yet ease the way towards a bigger set of partnerships at American auto plants. ©Bloomberg
The author is a Bloomberg Opinion columnist covering energy.
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