Automakers, suppliers seek growth in AI data centers, defense
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Automakers and suppliers in search of a lucrative side hustle are dabbling in AI, energy and defense as a way to offset stagnant growth in vehicle sales.
Why it matters: Carmakers have tried the diversification game before — but today's economic and technological shifts may give those efforts more staying power.
The big picture: "What's different this time is that the industry is undergoing structural change," said Lenny LaRocca, U.S. automotive industry leader for KPMG, referring to the industry's forays in the 1960s, '70s and '80s into aerospace, defense and electronics.
- Wall Street then had pushed GM, Ford and Chrysler for growth beyond cars, but investors eventually soured on the sprawling conglomerates, leading to their eventual retreat.
- Today is different, LaRocca told Axios. "Volatility is not just the storm — it's the climate," he said.
- The industry has reached "Peak Auto," and competition is brutal, so automakers and suppliers have to look for growth through diversification.
State of play: Automakers are hoping for billions of dollars in new revenue and profits from software subscriptions and services like automated driving.
- Beyond that, though, they're also eyeing higher-growth industries with better margins like defense or robotics.
- And battery factories and other EV-related technologies are being redirected toward grid-scale storage or AI data centers.
Driving the news: Ford, through a new energy subsidiary, is repurposing an EV battery plant in Glendale, Kentucky, for energy storage and just signed its first customer, renewable power developer EDF.
- The automaker is investing $2 billion to scale the energy business, which will supply at least 20 GWh annually by late 2027.
- It's one of at least 11 battery plants (including eight in the U.S.) being retooled for energy storage, according to BloombergNEF.
- General Motors is retooling a Tennessee battery plant co-owned with LG Energy Solution and working with battery recycler Redwood Materials to build batteries for energy storage.
Defense is another industry that's offering opportunities for automakers.
- The Wall Street Journal reported that the Pentagon has approached both Ford and GM about making weapons and other military supplies.
- Mercedes-Benz is considering expanding its role in European defense, while Volkswagen — founded in Nazi Germany in 1937 — is in talks with Israeli companies about producing components for that country's Iron Dome artillery defense system.
- GM, meanwhile, already produces the popular Infantry Squad Vehicle (ISV), a lightweight, diesel-powered truck for moving soldiers across rugged terrain, and is bidding on other military contracts in the U.S. and the U.K.
- Ford says it's also talking with officials in the U.S. and Europe about deploying models like the Ranger pickup for defense purposes.
Traditional auto suppliers also recognize the shifting landscape and are looking for growth elsewhere.
- Borg Warner, which makes turbochargers for gasoline engines, is now also supplying turbine-generator systems for data centers.
- Schaeffler, which makes bearings and other automotive components, is diversifying into humanoid robots, electric vertical-takeoff aircraft and defense, with a goal to generate 10% of revenue from new sectors by 2035.
What we're watching: Automakers have not yet tested the limits of consumers' willingness to buy software subscriptions for their cars.
The bottom line: In a stagnant vehicle market, they've got to focus on where the growth is — and for the moment, that's AI, energy and defense.
