Wall Street firm Morgan Stanley is betting on Ford Motor Co.’s new subsidiary, Ford Energy, to improve Ford’s electric vehicle unit’s pretax profits once the new business reaches full capacity.
If that turns out to be true, it would be a reversal of fortune for Ford’s Model-e unit, which has been losing about $5 billion a year.
In a research note published late in the day on May 12, Morgan Stanley’s Andrew Percoco wrote that Ford Energy could generate a 25% gross margin and earnings before interest and taxes of $346 million by 2028 — a year after Ford Energy starts deliveries.
Percoco said that investors are missing an opportunity if they don’t see the value in Ford Energy’s ability to drive improved profits within Ford’s Model-e segment. Even though Ford Energy is a new business for Ford, Percoco said, Ford has the right technology and a competitive edge with its partner, Chinese battery maker CATL.
“We believe Ford’s relationship with CATL is an underappreciated strategic competitive advantage for its Energy Storage business,” Percoco wrote. “Through this relationship, Ford becomes a key supplier of compliant (Energy Storage Solution) systems to utility and data center customers in the U.S.”
Wall Street paid attention. Ford stock surged 14% in midday trading on Wednesday, May 13, after the note’s release. Ford stock closed Wednesday at $13.57, up 13.18%.
Ford’s gamble on Ford Energy
Last December, Ford announced it would venture into the new business of making battery energy storage systems, called Ford Energy.
Ford made the announcement as part of the nearly $20 billion overhaul of its business model. Battery energy storage systems are large batteries, some as big as shipping containers, used by utility companies and data centers to store energy for use later to stabilize the power grid and to avoid blackouts.
On May 11, Ford formally introduced Ford Energy. The company has said Ford Energy will deploy a minimum 20 gigawatt-hour capacity of battery energy storage systems annually. To put that in perspective, a gigawatt is equal to 1 billion watts. A power plant with a capacity of 1 gigawatt-hour could power about 876,000 households for one year if they collectively consume 10,000 kilowatt-hours each and the plant operates continuously, according to Carbon Collective, an investment adviser focused on climate change.
Ford Energy is several months away from producing these new energy storage systems in Kentucky and the smaller ones that will be made in Marshall, Michigan, for residential customers. Ford Energy is expected to start making deliveries of the systems in late 2027.
But, as the Detroit Free Press reported in March, Ford is taking a big gamble on this new business. Ford has little experience making such batteries and it will be going up against competitors Tesla, LG Energy Solution and SK On, all of whom have been making the energy storage systems for more than a decade.
Percoco is undeterred, noting that Ford’s decision to invest $2 billion into a new Energy Storage business “was received with a lot of skepticism by the market, which was understandable given it was announced concurrent with a (nearly) $20 billion write down within Ford’s EV business. However, there is one clear point of differentiation for Ford with regards to Energy Storage — it is licensing technology from CATL, which is the premier Energy Storage manufacturer globally.”
CATL, a Chinese company, is one of the largest manufacturers of lithium-ion batteries for EVs and energy storage systems. In 2023, Ford licensed use of CATL’s technology. That same year, Ford invested $3 billion to build the factory in Marshall so as to use the CATL technology.
By licensing CATL’s tech and building the batteries in the United States, Percoco said Ford will meet a requirement of 55% battery content from Foreign Entity of Concern (FEOC)-compliant suppliers. That matters because Ford Energy will qualify for the 30% Investment Tax Credit, which Percoco said is a “competitive advantage.”
The launch of Ford Energy
Ford CEO Jim Farley told analysts on a Feb. 10 call that the company has done its homework to prepare to launch Ford Energy.
“We have been deeply engaged with customers as we developed this business plan and we continue to engage them in specific contracts for our 20 gigawatt-hour capacity in 2027 and beyond,” Farley said.
In his research note, Percoco said there is a “fairly high likelihood that Ford signs an (Energy Storage Solution) supply agreement with large commercial customers, and potentially hyperscalers, over the next few months.”
He also said Morgan Stanley estimates Ford Energy will one day be worth as much as $10 billion on its own. If the FEOC-compliance holds, that value could even go higher, Percoco indicated.
Despite the bullishness on Ford Energy, Percoco projected a 25% gross margin only when the business scales, noting a negative pretax earnings in its first year in operation. Morgan Stanley believes the business would flip to a positive earnings before interest and taxes contribution in 2028.
Jamie L. LaReau is the senior autos writer who covers Ford Motor Co. for the Detroit Free Press. Contact Jamie at jlareau@freepress.com. Follow her on Twitter @jlareauan. To sign up for our autos newsletter. Become a subscriber.
This article originally appeared on Detroit Free Press: Ford stock surges as Morgan Stanley backs new battery storage venture
Reporting by Jamie L. LaReau, Detroit Free Press / Detroit Free Press
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