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| People attend a ceremony marking the production launch of Tesla's Megafactory, which manufactures Megapack batteries, in Shanghai, China February 11, 2025. cnsphoto via REUTERS/File Photo |
Carmakers and battery companies facing a weak US market for electric vehicles are scrambling to repurpose battery factories to make energy-storage systems to fuel AI’s thirst for power instead. But converting plants to new types of batteries won’t be easy, nor will the demand for energy storage materialize fast enough to absorb a glut of unused factory space for EV batteries.
The expected surge in demand for electricity and energy storage comes at an opportune time for automakers like General Motors (GM.N) and Ford Motor (F.N) and their battery suppliers — Asian manufacturers that include Japan’s Panasonic Holdings (6752.T), and South Korea’s Samsung SDI and LG Energy Solution. These companies over the past decade spent or earmarked more than $100 billion toward battery factories to feed a US electric-vehicle market that has been decimated by the Trump administration’s pro-fossil-fuel policies.
Stationary storage systems use lithium-ion battery cells – similar to those in EVs – that store power often generated by renewable sources like solar and wind, and release it during times of high demand or grid stress. US demand is expected to grow partly to support data centers and cloud computing, which draw gobs of electricity.
But the predicted energy storage boom wouldn’t come close to offsetting the bust in demand for EV batteries, a Reuters review of projected US battery-factory capacity this decade found. US demand for EVs already had been falling short of automakers’ original projections even before a $7,500 consumer tax credit expired September 30, sending sales down more than 25 per cent over the past six months.
Converting factories to the type of battery chemistry that many energy storage systems use will take time and yet more money, and require the companies to delve into a technology that today is dominated by China.
Bob Lee, head of North America for LG Energy Solution (LGES), a battery arm of Seoul-based LG Group, said his company is converting three of its factories in North America to produce batteries for storage systems. He expects the battery business in the United States to continue to struggle with excess capacity, what he calls “fallout” from the EV bust.
“Like any other industry that goes through a difficult period like this, I don’t think it’s going to be all rosy,” he said.
Ford said it is spending $2 billion on a new battery-storage division over the next two years to “create a new, diversified and profitable revenue stream.” GM’s joint venture with LGES, called Ultium Cells, said last month it will convert an EV-battery plant in Tennessee to make battery cells for storage.
CONVERTING FACTORIES TO STORAGE IS COMPLEX, COSTLY
Demand for stationary batteries in North America will hit 76 gigawatt-hours this year, according to consultancy Benchmark Mineral Intelligence. But the auto industry’s investment binge on EV battery capacity has left it with far more factory space than that: roughly 275 GWh. While storage demand is expected to nearly double over the next five years, to 125 GWh, that still won’t be enough to mop up the excess capacity installed for the auto industry.
For example, LGES, which produces battery cells in North America at its own facilities and in joint ventures with General Motors, Honda and Hyundai, is converting factory space to be able to produce up to 50 GWh of batteries for storage a year by the end of this year. Still, that’s only about a third of the company’s overall capacity in the region.
Most energy storage systems use a breed of batteries called lithium iron-phosphate, or LFP, which is cheaper than the nickel-heavy chemistry that is predominantly used for EV batteries in North America. Switching factories to LFP can take as long as 18 months and cost several hundred million dollars, battery executives told Reuters.
For US battery makers, producing LFP is also complicated by China’s dominance of that technology and its supply chain. US-based battery makers are working to cut their reliance on Chinese materials to qualify for generous federal tax credits for domestic battery production that took effect during the Biden administration and were left in place under Trump, said Iola Hughes, Benchmark’s head of research. Producers must gradually phase out Chinese content in coming years to get the full tax breaks.
Trade barriers are another problem. US tariffs on Chinese-made cathode and anode materials – the two electrodes that ping-pong the electric charge back and forth inside a battery – stand at 35 per cent, according to Benchmark Mineral Intelligence.
CARMAKERS CHASE TESLA ON BATTERY STORAGE
The pivot to energy storage by US carmakers and battery companies has accelerated in recent months.
In March, the GM-LGES joint venture said it was spending $70 million and retraining workers to make battery cells for storage at its plant south of Nashville. Ford Motor in December disclosed it would repurpose some underused factory space in Kentucky to make storage batteries.
Traditional automakers are playing catch-up to Tesla. Elon Musk’s company has spent about a decade developing its energy storage business, which has become one of the EV maker’s fastest-growing divisions.
It was also more profitable than its EV business in 2025, with gross margins of about 30 per cent compared to about 15 per cent for its automotive business, excluding earnings from regulatory credits.
Deployments of Tesla’s so-called Megapack storage units have surged, including $430 million in revenue last year from sales to Musk’s xAI, an example of how AI-driven data-center demand is translating directly into battery orders.
Kurt Kelty, GM’s battery chief and a former Tesla executive, told Reuters in January that the company is committed to building a battery manufacturing industry and supply chain in the US Whether it’s for EVs or storage systems, he said, “it really doesn’t matter.”
