General Electric Company (GE) intends to expand its growing industrial-battery business in order to generate $1 billion in annual revenue by the end of 2020. This expansion plan also reflects CEO Jeff Immelt’s goal of generating $500 million a year from the industrial battery business by 2015/2016.
The global battery market values approximately $50 billion, out of which the U.S. is the single biggest market in the world with a market size of $5 billion annually. Demand is expected to grow substantially in the next five years.
The industrial battery business is a market with good potential. Since customers generally order in bulk for ongoing production activity, customer acquisition is a focus area. A few good customers ensure a steady revenue stream, allowing better alignment with the fixed cost structure, which in turn allows better cost absorption. GE has already received its first order for batteries from a South African engineering company, Megatron Federal, which requires 6,000 pieces for use as backup power supplies at telecommunications sites.
GE now plans to invest $170 million in a new factory, which is up from the $100 million it initially expected to spend on the manufacture of batteries.
The new plant is located in New York and will employ approximately 450 people. For construction of the plant, GE received $15 million from New York State authorities and $5 million from local officials.
However, the new factory is not GE's only investment in battery technology. The company also has a stake in A123 Systems Inc. (AONEQ), a maker of lithium-ion batteries used in electric and hybrid cars.
General Electric currently holds a Zacks Rank of #3, which implies a short term Hold rating on the stock.
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