Mike Wolanin | The Republic Battery cells made by Accelera by Cummins are on display at Cummins Engine Plant in Columbus, Ind., Thursday, July 11, 2024. The Department of Energy awarded Cummins a $75 million grant to convert some of the manufacturing space at the plant to produce zero-emissions components and electric powertrain systems.
Cummins Inc. said that its Accelera business is not currently on track to meet its goal of breaking even by 2027.
At the same time, the Columbus-based company reported Tuesday that it spent $312 million on “reorganization actions” within the business segment during the final three months of last year.
Accelera, which has been incurring losses largely due to costs associated with developing and investing in technology, is the part of the business that includes Cummins’ electrified power and hydrogen portfolios and represents much of the company’s efforts to invest in technologies that seek to curb greenhouse gas emissions.
In May, Cummins said it expected Accelera to break even in 2027 but lowered its revenue target for the business segment due to what company officials at the time described as a “slow and messy” energy transition that was “generally evolving slower than what we anticipated.”
Accelera reported $414 million in total sales during 2024, up from $354 million the year before, according to financial results released Tuesday. However, the business segment’s earnings before taxes, depreciation and amortization (EBITDA) — a measure of overall financial performance — was negative $431 million in the fourth quarter, which includes the costs associated with reorganization.
Beyond reorganization actions, costs associated with the development of electric powertrains, fuel cells and electrolyzers, as well as products to support battery electric vehicles, also contributed to EBITDA losses in the fourth quarter, the company said.
“Right now, we are not on track toward that break even (in 2027),” said Cummins Chief Financial Officer Mark Smith told financial analysts on Tuesday. “…That’s really the reason why we took more pronounced actions, or the Accelera team did, in the fourth quarter, recognizing that we’re not going to get enormous help from demand here in the near term.”
While the energy transition is evolving at a slower-than-anticipated pace, Cummins officials said they still believe the company is well-positioned for the global shift away from fossil fuel-based energy production, including the traditional diesel engine that Cummins is perhaps best known for.
The energy transition seeks to transition from fossil fuel-based energy production to renewable energy sources in an effort to lower carbon pollution and other greenhouse gases and avert catastrophic climate change.
Cummins Chair and CEO Jennifer Rumsey told financial analysts on Tuesday that the company “looked at where we see the market is moving” before taking the reorganization actions. Rumsey and other Cummins officials did not provide many details on what those actions specifically entailed.
However, Rumsey said the company has seen “some slowing demand and uncertainty around incentives” for electrolyzers and that some customers are “being selective with fuel cells and some of the other technologies where adoption continues to push out.”
Electrolyzers are devices that use electricity to split water molecules into hydrogen and oxygen, according to the U.S. Department of Energy.
“This business all along has been about remaining agile and investing as we see technology advancing and markets starting to move in these zero emissions technologies, and we formed it through a number of acquisitions as well,” Rumsey said. “What that meant is that we had kind of a distributed footprint and investment coming from those acquisitions.”
“We think we’re well positioned,” Rumsey added. “Frankly, the slower and messier this goes, my view is the better it is strategically for Cummins.”
In May, Cummins said it anticipated investing significantly in engine-based solutions and then in a “targeted way in the zero-emissions technologies for applications where they’re beginning to make sense” between now and the end of the decade.
Between 2030 and 2040, Rumsey said the company expects to see a “range of different solutions based on how regulations and infrastructure evolves.”
Rumsey said in May that she then expects to see more broad adoption of a number of different zero-emissions technologies “as we get into the 2040 and 2050 time frame.”
Local analysts said they were not entirely surprised by the reorganization actions within Accelera.
“Anytime you have a new division that you start, there are going to be ebbs and flows to meeting expectations right out of the gate,” said Craig Kessler, president and chief investment officer at Columbus-based Kessler Investment Group. “I’m not really concerned by that. Some of that is outside their hands. I think they’re going to manage well within the opportunity they have. I think the addressable market is still there, and I think that it’s going to continue to grow. Just because we have a little bit of setback and not meeting a short-term goal right out of the gate, that doesn’t lead me to be concerned about the prospects going forward.”
Mike Petry, senior equity analyst at Columbus-based Kirr, Marbach and Co., said the reorganization actions were not surprising given how flexible the company has made that business unit.
“They gave limited detail, but they elaborated on it a little bit and just said they’re kind of rightsizing costs in that segment with near-term demand,” Petry said. “With that segment being so focused on the electrification and hydrogen technologies, all of the cutting-edge stuff at Cummins, it’s not really a big surprise.”
