By Jinjoo Lee
Makers of electric-vehicle batteries are pivoting to make energy storage for data centers and utilities, including the likes of Ford Motor.
Battery manufacturers made significant investments in the U.S. in recent years, buoyed by policy support for EVs. That changed when President Trump's administration took away carrots incentivizing EV buyers and did away with sticks that punished automakers for making gas-guzzlers. Benchmark Mineral Intelligence expects energy storage to make up 41% of total U.S. battery demand this year, up from 26% two years ago.
At the same time, there are clear incentives to make grid-scale batteries in the U.S. Even though Trump's signature One Big, Beautiful Bill Act took away tax credits for solar and wind, subsidies remain for energy storage as long as the equipment doesn't contain too much content from China. Chinese-made batteries themselves face high tariffs.
The Iran war's destabilizing impact on fossil-fuel markets could be yet another catalyst for data centers to consider batteries over diesel or natural-gas-fired power. While higher gas prices could boost the appeal of EVs, the policy challenges they face in the U.S. make hybrids a more likely beneficiary for the foreseeable future.
Two deals announced this week illustrate the shift. LG Energy Solution, the battery-making unit of Korean conglomerate LG, said it would produce battery cells for Tesla's energy-storage business out of a Michigan factory that was once meant for General Motors' EV batteries. The factory is expected to cost $4.3 billion. Samsung SDI, another Korean energy storage maker, announced a $1 billion deal to supply batteries to an undisclosed American energy company out of its Stellantis joint-venture factory in Indiana.
Others making this change include Ford, which plans to invest $2 billion between 2026 and 2027 to repurpose its EV battery manufacturing capacity in Kentucky. Japanese battery manufacturer AESC has retooled a Tennessee factory that used to make batteries for the Nissan Leaf.
The conversion from EV to stationary batteries typically involves a change in chemistry. Many EVs run on lithium-ion batteries with cathodes made of nickel, manganese and cobalt (NMC) because these are more energy-dense and ideal for maximizing vehicle range. Grid batteries tend to use lithium iron phosphate (LFP), a cheaper option that lasts longer cycles and is more resistant to overheating, a feature that allows cells to be packed tightly together. Converting the chemistry is a relatively cheap process and can be done in six months to a year, according to Iola Hughes, head of research at Benchmark Mineral Intelligence.
Changing the shape of the battery is more expensive, Hughes noted. EV batteries come in different forms -- cylindrical, pouch and prismatic -- but grid-scale batteries tend to just be prismatic, a rectangular shape that can be stacked. Ford's Kentucky factory will be changing both chemistry and shape: It will go from producing NMC pouch cells to LFP prismatic ones.
Can the shift be lucrative? On Ford's earnings call last month, Chief Executive Jim Farley said the energy storage business has a "short payback period" and that it can be used to "de-risk the core automotive business." Ford's need to "de-risk" looks more urgent today: Rising oil prices have created yet another headwind for automakers that pivoted to making gas-guzzlers.
The battery business has certainly been fast-growing and profitable for Tesla, the top seller of grid-scale batteries in the U.S. Its energy storage division, which also sells residential batteries and solar panels, generated a roughly 30% gross margin last year, compared with an 18% margin from selling EVs. Revenue at Tesla's energy storage division is set to jump 45% this year while EV sales are expected to grow just 2.3%, according to analysts polled by Visible Alpha.
Ford will have to prove that it can make high-quality, cost-competitive grid batteries. Unlike Tesla, which has primarily sourced cells -- the building blocks of batteries -- from Chinese battery giant CATL, Ford plans to make its own, albeit with technology licensed from CATL.
Batteries are attractive to data centers for a couple of reasons. For one, there has been a regulatory push to allow data centers faster interconnection to the grid if they agree to turn down grid usage when demand peaks. On-site batteries can help data centers meet that requirement. Their quick-ramp ability suits the highly variable power needs of data centers.
Energy storage is also a lot cheaper today: The cost of LFP batteries -- the type used on grids -- have halved over the past two years, both thanks to innovation and bigger manufacturing scale, according to Hughes. In fact, the levelized cost of energy of battery storage was cheaper last year than gas turbines for the first time, according to BloombergNEF.
One big problem is that China dominates the battery supply chain, accounting for 99% of cathode supply for LFP batteries, according to Hughes. That could make it difficult for U.S. battery makers to qualify for tax credits. "If manufacturers have these really aggressive build-out plans that hinge on them qualifying for these tax credits but they're unable to source materials that would make them compliant, what happens with all this announced capacity?" noted Allison Feeney, analyst at Wood Mackenzie.
China has more manufacturing capacity for energy storage than global demand, according to BloombergNEF's Isshu Kikuma. That could pose a threat if Chinese manufacturers cut prices to mitigate tariffs.
Perhaps the biggest risk is that favorable policies -- tariffs on Chinese imports, tax credits, and the rules around qualifying for tax credits -- are subject to change. As automakers learned the hard way with EVs, policy-driven investments can sour very quickly when incentives change.
Write to Jinjoo Lee at jinjoo.lee@wsj.com
(END) Dow Jones Newswires
March 19, 2026 05:30 ET (09:30 GMT)
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