Striking a cultural balance between old-line manufacturer and startup-minded developer of hydrogen and electrification technologies foreshadows a day when Cummins Inc. will be better known for low-carbon initiatives than the diesel engines that marked the company’s first century.
The question of a transition to a new identity doesn’t take CEO Tom Linebarger by surprise, though it is not the kind of query he usually fields from industry analysts on quarterly earnings calls.
“I think at its core the company has been about innovating to solve commercial industrial customers’ problems on power,” Linebarger said. “So, at one level I don’t think we’re changing very much at all. I think it’s a different set of solutions to a lot of similar problems.
“But if you cut a layer deeper, the company’s changing a lot. For one thing, most of the technologies that we’re introducing in the New Power sector have a lot of promise but very few commercial customers.”
Those new technologies are mostly housed within Cummins’ (NYSE: CMI) newest division, appropriately called New Power. Electrification and hydrogen are two major pursuits, matched with discerning customer applications from buses, trucks and trains to backup power for data centers.
New Power doesn’t make money — yet. But revenues and profits before interest and taxes are growing.
‘Essentially a startup’
“We’re essentially a startup there,” Linebarger said. “We’re trying to convince customers to try things, and the economics of it are not perfect. The technology is good, but it’s not perfect. The diesel engine is perfect. It’s 105 years of perfect.”
Perfect may be a bit of an overstatement. But it is a known and reliable technology. And its sales pay the bills for a lot of what New Power is doing.
The mindset in the diesel part of Cummins’ business is refinement. The latest round of emissions-reduction regulations is nothing new for the company. It’s been working on clean diesel technology since the Clean Air Act became law in 1970.
Watch now: Cummins New Power President Amy Davis on building from within
Linebarger is managing two cultures within one.
“[Diesel] is like the plan is the plan is the plan. Go take 3% more [emissions] out. Work out these supply chain issues. Whack some more moles,” he said. “What we’re trying to do under one umbrella is create a little bit more agile and innovative culture [and] give [New Power] more freedom to operate from the monster that always wants to slow things down and refine.”
But the day is coming when the two will reverse positions as the dominant part of Cummins’ business — and identity.
“At some point the low-carbon thing becomes the main thing. And this other thing [diesel] becomes the niche business,” Linebarger said. “I do think diesel engines will be around for our kids’ full adult lives. But it will move from the main thing to a place that it operates in some places.”
Linebarger also talked with FreightWaves about some of the specifics that encompass the future of the company founded in 1919.
FREIGHTWAVES: You recently announced an investment in Sion Power to develop lithium metal technology for batteries. Is this research or a commercial endeavor?
LINEBARGER: “The way that I think of these things, it’s in the research phase. There are researchers that say that it’s development. It probably depends on which side of this rock you stand on. Batteries still don’t really have the power density to deal with long-haul trucking. Sion Power is trying to come up with a solution that is almost solid state. And the technology is really, really interesting and promising. But we’re not going to introduce a product in 2024. That’s not what’s going to happen.”
FREIGHTWAVES: Cummins has invested heavily to acquire a range of fuel cell businesses and you’ve predicted $400 million in hydrogen revenue by 2025. What percentage of that would be transportation fuel?
LINEBARGER: “If you went out to 2030, there could be significant transportation fuel. We’ll have 40 trains with hydrogen fuel cells running in Europe carrying passengers by the end of the year. I mean, that’s serious, that’s real passengers riding on fuel cell trains.”
FREIGHTWAVES: You’ve also said your focus is on green hydrogen from renewables. Is this the only answer?
LINEBARGER: “We are now in different stages of the hydrogen business and we can use whatever color [hydrogen] you want. We have a tank business, which is all about how we use it on mobile applications. And then we have this electrolysis business [that] uses the grid. The difference though is the cost of the SMR [steam methane reforming] technology is lower today than electrolysis from the grid unless the grid comes in at really low [electric] rates. You can do an SMR technology that works, and that’s why you see so much gray hydrogen. It’s not that people prefer it, it’s that it’s low cost and they already have the plants.”
FREIGHTWAVES: How do you make the transition to green hydrogen?
LINEBARGER: “Hydrogen’s already a very large commodity. The fuel cell trucks we’re running around today are using gray hydrogen because that’s what you can buy. What we’re trying to do on the electrolysis side is work on these projects where we’re using renewable electricity to produce green hydrogen and then bring the cost of that down by being next to renewable energy that’s low cost and finding applications for the hydrogen nearby so you’re not transporting as much. That’s the way to get the equation to work.”
FREIGHTWAVES: Cummins also has discussed developing an internal combustion engine [ICE] that could burn hydrogen. Is the cost of that something you feel comfortable recouping?
LINEBARGER: “We see a very long transition between ICE and these zero-carbon technologies. I don’t know the exact date. It’s going to take a long time because there’s some of these applications, like buses, where the entire U.S. demand is 10,000 units. I think gaseous-fueled ICE is around for a long time. What gas is the question. We’re going to launch a set of platforms this decade whose bottom end looks the same and whose top end is able to take a range of gaseous fuels. We’ve been working on this since the early part of the last decade. How do we offer an engine where we can be more fuel agnostic? What we are seeing is an added cost of diesel engines where you have to have a chemical factory at the back end to take out the criteria pollutants.”