General Motors (GM 1.34%) has been winning plaudits of late thanks to its aggressive push into electric vehicles. Now, it's hoping to extend the reach of its tech to eco-friendly railroad locomotives as well.
GM is partnering with Wabtec (WAB 0.11%) to use the automaker's battery and fuel cell technologies on a new generation of freight locomotives. Right now the typical locomotive burns about 300,000 gallons of diesel per year, according to Wabtec, but the two companies hope over time to eliminate the need for fossil fuels completely.
"The rail industry is on the cusp of a sustainable transformation with the introduction of batteries and hydrogen to power locomotive fleets," Wabtec CEO Rafael Santana said in a statement. "By working with GM on Ultium battery and Hydrotec hydrogen fuel cell technologies, we can accelerate the rail industry's path to decarbonization and pathway to zero-emission locomotives by leveraging these two important propulsion technologies."
It's early days in this partnership, and the companies aren't talking about financial terms for now. But there is a lot in it to be excited about. Here's why the partnership is a smart move for both companies, with the potential to pay off for shareholders down the line.
What it means for Wabtec
Wabtec, or Westinghouse Air Brake Technologies, became a world leader in locomotives via its 2018 merger with the transportation unit of General Electric. The company, through that deal, also inherited a place on a California Air Resource Board pilot program to develop and test clean locomotive tech.
Although rail is considered a relatively cleaner form of transportation compared to trucking and air shipments thanks to feul efficiency, there is still a lot of room for improvement. Wabtec said that the pilot program indicated its battery-electric locomotive delivered an 11% average reduction in fuel consumption and greenhouse gas emissions, the equivalent of more than 6,200 gallons of diesel fuel saved and a reduction of about 69 tons of carbon dioxide emissions.
With the pilot now done, Wabtec is working on a second-generation FLXdrive locomotive with bigger batteries that it says should cut fuel consumption and emissions by up to 30%. It hopes to commercialize that locomotive and have it in operation within five years.
But battery and fuel cell research is expensive, and with a flood of investment already going into electric vehicles from existing automakers like GM and a wave of start-ups, Wabtec apparently doesn't see the value of developing its own tech in-house. By working with GM, Wabtec can get its product to market faster, and not spend billions to repeat R&D work already done by others.
What it means for GM
For General Motors, the partnership offers new ways for the company to test and potentially commercialize its technology, and an opportunity to add to its clean tech credentials.
"Rail networks are critical to transportation and to GM's ability to serve our customers across North America, and Wabtec's bold plan to de-carbonize heavy haul and other locomotive applications helps advance our vision of a world with zero crashes, zero emissions and zero congestion," company president Mark Reuss said in a statement.
Working with Wabtec, Reuss said, "further validates our advanced technology and demonstrates its versatility."
General Motors has pledged to spend upwards of $35 billion on clean tech through 2025, including expanding production of the Ultium battery tech and Hydrotec fuel cell power cubes that Wabtec will deploy.
General Motors has been increasingly flexing its muscles outside of its core business. In January, the company partnered with Navistar International to provide hydrogen fuel cells for trucks, and more recently provided its battery and propulsion tech to Lockheed Martin to develop a new moon rover for NASA.
Fuel cells are still an unproven technology for autos, and might prove better-suited for larger equipment like trains and trucks. But there is still enough interest in the potential of the technology that GM sees value in investing in it. Working with Wabtec gives GM another opportunity to make that investment pay off.
What it means for investors
At best, these next-gen locomotives are years away, and investors should not expect this partnership to affect the bottom line for some time. But that's not to say it isn't important. As ExxonMobil recently found out the hard way, there is increasing pressure on old-economy industries to go green.
Wabtec's railroad customers will need better options in years to come, and the company is laying the foundation for future growth by advancing its FLXdrive technology today.
For General Motors, the jump from highway to the rails is unlikely to account for more than a small part of its overall business. But given the amounts the company is investing in next-generation propulsion technology, anything it can do to expand the total addressable market it can sell into is a plus. The partnership aids General Motors' push to expand its core business beyond simply making cars and into more of a tech supplier role for other industries.
The idea of GM batteries and fuel cells on locomotives only adds to my belief that the 112-year-old automaker will be one of the big winners of the electrification revolution.
For long-term holders of both Wabtec and General Motors, this partnership opens up a lot of intriguing possibilities.