Cummins Inc. officials said the company continues to see a “long and messy” energy transition over the coming decades as key factors expected to drive adoption of lower-emissions technologies have been evolving more slowly than anticipated.
The Columbus-based company has raised its annual revenue target for its base business by the end of the decade to $39 billion to $42 billion, up $6 billion to $7 billion from previous projections, with officials telling analysts that the company is “well positioned to grow regardless of the pace of the energy transition.”
At the same time, Cummins lowered its revenue target for Accelera, the part of the business that includes the Cummins’ growing electrified power and hydrogen portfolios and represents much of its efforts to invest in technologies that seek to curb greenhouse gas emissions.
The company currently expects Accelera, which has been incurring losses largely due to costs associated with developing and investing in technology, to break even in 2027.
Those were some of the messages that company officials, including Cummins Chair and CEO Jennifer Rumsey, delivered to investors and analysts during a series of presentations at the company’s analyst day event on Thursday.
“Two years ago, we told you that the transition will be long and messy, and that truly is the case,” Rumsey said during the event. “Those key factors that I said would shape how the transition occurred … are evolving and generally evolving slower than what we anticipated two years ago.”
The energy transition refers to the global shift away from fossil fuel-based energy production, including the traditional diesel engines that Cummins is perhaps best known for, to renewable energy sources in an effort lower carbon pollution and other greenhouse gas emissions and avert catastrophic climate change.
How that transition plays out could have major implications for a city like Columbus, whose economy is heavily rooted in automotive manufacturing.
Diesel fuel is refined from crude oil and is used to fuel compression-ignition engines named after their inventor, Rudolf Diesel, according to the U.S. Department of Energy.
Most freight and delivery trucks, buses, farm and construction vehicles, as well as some cars and pick-up trucks, currently use diesel engines, according to the U.S. Energy Information Administration.
But that is expected to change in the coming decades, with the industry accelerating toward number of more environmentally-friendly fuel types and power sources, including, among others, battery electric, hydrogen and natural gas engines.
However, the rate of change appears to be happening more slowly than expected, Cummins officials said.
During the event, Rumsey said that is due to a combination of economic realities, customer acceptance and a slower build-out of infrastructure, which have made it difficult for customers to adopt lower- and zero-emissions technologies.
Additionally, regulations and incentives are playing a role and could act as an “enabler to help push” other factors shaping the transition and bring certainty to the market, officials said.
“All these technologies require an infrastructure that does not exist today,” Rumsey said. “…Today, they all cost more than diesel.”
As a result of how officials “see those markets and solutions evolving today,” Cummins is now projecting Accelera to have $3 billion to $9 billion in revenue by 2030, down $3 billion to $4 billion from the company’s previous expectation.
By comparison, Accelera reported $354 million in total sales in 2023, up from $198 million the year before. The business segment’s earnings before interest, taxes, depreciation and amortization (EBITDA) — a measure of overall financial performance — was negative $443 million last year.
Cummins officials have said costs associated with the development of electric powertrains, fuel cells and electrolyzers, as well as products to support battery electric vehicles have been contributing to the EBITDA losses.
However, officials said they now they believe those losses have peaked and will continue to decline as the business segment heads toward profitablity.
“We’ve been proactive in investing in new technologies ahead of widespread market adoption,” Cummins Chief Financial Officer Mark Smith said during the event. “It’s important that we continue to develop, sell and get experience with these new technologies ahead of a more faster transition to adoption. And while we’ve done that, it has been necessary to invest and incur losses as we’ve expanded our capabilities and increased the sweep of the portfolio of our products. It’s great, though, to share that we believe now we’ve past that peak of those EBITDA losses.”
While the energy transition is evolving at a slower-than-anticipated pace, Cummins officials said they have seen some advancements and incentives that are helping to start drive adoption and make lower-emissions technologies more viable, including incentives in the Inflation Reduction Act, which Rumsey said are “really critical to help drive adoption.”
The Congressional delegation representing Columbus — Rep. Greg Pence and Sens. Todd Young and Mike Braun — largely opposed the legislation. Young and Braun voted against the bill, while Pence didn’t cast a vote.
Currently, Cummins anticipates 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 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”
In the meantime, company officials said “Cummins is well positioned to grow regardless of the pace of the energy transition.”
