Meet the Experts Podcast: Navigating Tariff Uncertainty with Andrew Thomas, Acculon Energy President

Full Transcript:

Introduction to Tariffs and Their Impact

Betsy Barry 

Hello! Today, I am joined by Andrew Thomas, the president of Acculon Energy, for our third installment of Meet the Experts. And we’re gonna change up the format a little bit today and discuss a topic that’s front row and center for many global businesses at the moment. And that is tariffs.

So I think that it’s safe to say that there’s a lot of uncertainty around President Trump’s tariff policies at the moment and their potential impact. And I don’t think I’m exaggerating when I say companies across every industry, including the battery industry, are scrambling to secure alternative suppliers and to explore manufacturing options just to mitigate the potential price hikes and to ensure production continuity. This is something that a lot of us are experiencing at the moment. And we tossed around the idea of maybe inviting a tariff expert to come and talk to us, but I have a feeling that, well, I think we can say for sure that they’re scrambling as much as the rest of us are. So maybe having a kind of boots-on-the-ground perspective about how companies like Acculon are navigating and trying to exist in this shifting trade dynamic and geopolitical landscape would be a better, or a more interesting use of our time. So I think maybe we’ll just dive right into it if that’s okay, Andrew. Do you want to say hi?

Andrew Thomas

Yeah, let’s go for it. For the 10th time today, let’s talk about tariffs.

Betsy Barry 

Right! I know we just never tire of this topic. Great. So I think right out of the gate, the question that is probably on a lot of people’s minds, even if you’re not really interested in manufacturing or, you know, just if you have even a light interest in where the battery that powers your phone comes from or the one that powers your Tesla comes from, the companies here kind of in the front lines are trying to figure out like, you know, how we can strategically approach tariffs in a way that doesn’t impact us, well, or that mitigates the impact as much as possible. So, could you maybe just start out with some proactive measures that Acculon is pursuing to mitigate the supply chain uncertainty and the price uncertainty that’s kind of swirling around our geopolitical trade policy at the moment?

Navigating Supply Chain Uncertainty

Andrew Thomas

Sure, I mean, think the challenge for the global business community is that trying to create a strategy in this period of time and execute it is almost impossible because everybody’s after the same result. So I think the businesses that we’re seeing have success amidst the uncertainty.

Your strategy has to have been well defined and is something that you’re executing upon and living with now. And that’s, you know, if I can wind the clock back for Acculon, when we formed the company three years ago, we had really two major theses. Thesis one was from a private capital investment perspective.

The electrification/energy storage themes were attracting as much capital as almost any theme in the marketplace. Right up there with this is when we formed the company three years ago; artificial intelligence was not what it is today. Robotics was not what it is today. This was very much in the sort of spring moment of electrification. And you had to believe that the influx of capital investment working on battery technology was going to be a disruptive force. And that disruptive force would sustain for quite a long period of time.

We’re Volta Foundation members, and they produce an awesome annual report. And I think just in the time since Acculon has been ideated and formed, there’s almost $200 billion of investment that’s gone into the battery space. And we’re still feeling the pot, the…I would say we view it as positive, but the positive disruptions and the positive advancements in battery technology during that period of time, and again, will continue for the next decade, from those dollars. The second kind of thesis that we had was that we’re in the energy business. Energy independence, energy security is a, to take your words, a front and center topic. It is central to every sovereign country in the world. Energy generation and energy delivery are very commonly nationalized and otherwise highly protected ⁓ by governments around the world. And it was hard for us to believe that batteries over time would be treated differently. So I think, you know, we believed and anticipated that the current supply chain, which goes from raw materials to raw materials processing to finished product production that happens currently, you know, currently in China, that the world would not sustain that paradigm over time if they were going to continue, if governments were going to continue to have desires for energy independence and energy security. So that informed us as a company to build an organization and to develop intellectual property, and now to commercialize products that can adapt to those two disruptive forces in the marketplace, being rapid technological advancement and a reshuffling of the supply chain paradigm. So we as a company, I don’t know if anticipate’s the right word, but I think if you’re in this industry and have the same belief system that we do, we had to develop tech…a product and technology that would allow us to actually harness those disruptions to the benefit of our customers as opposed to being in a position now amidst just the tariff uncertainty where, hey, you’re not really sure if you’ve got a viable business anymore.

Betsy Barry 

That’s interesting, think too, because when, you know, our sort of ethos as a company, we’re nimble and we’re always kind of exploring relationships out there in the battery space in a way that inoculates us against the political environment here domestically that, you know, shifts with the wind. You know, you have to have a company that can survive in any kind of political landscape, I guess, is kind of my way of thinking.

Andrew Thomas

Yeah, I think so, Betsy. mean, you know, we’re in a B2B business here. And what do our customers, what does the market value? Stability and quality. Right. And that’s stability in terms of the price of your product, and that’s stability in terms of…

Betsy Barry 

Mm-hmm.

Andrew Thomas

…your normal working relationship. You know, things like lead time, things like supplier audits, and just the way that you operate your business in this marketplace. Gosh, mean, that’s, stability is kind of king, right?

Building Strategic Relationships in the Battery Industry

Betsy Barry 

Yeah, and you touched on something that I kind of want to explore a little more in this. And I always think about this. This is kind of always front row and center of my mind, especially in our industry. And I say this so much that I feel like a broken record. And I almost want to stop myself from saying it. But there’s something very collective and small in a lot of ways about the battery industry, even though our supply chain is vast and global. But there seems to be a kind of spirit of collaboration and exploration in, gosh, across the value chain, I would say that’s what I see. Maybe I’m just being an optimist. Very few people would accuse me of such a thing. But can you speak a little bit to the relationships that we’re establishing, ⁓ kind of our strategic supply relationships, how we’re developing and leveraging sort of stable relationships to ensure stable output, stable prices for our customers? Just go into a little bit more of that.

Andrew Thomas

Sure. Picking up on my initial soliloquy, our product architecture uniquely allows us to integrate different cells made by different manufacturers, made of different chemistries, very quickly into our product. Also, from the benefit of…we’re vertically integrated in our business, meaning that in order to make a battery module in a battery pack, you have to have the ability to do design. You have the ability to validate your products. But you crucially have to understand how to integrate cells and understand how those cells will perform. And I think we’re pretty uniquely positioned as a vertically integrated business where the selection of cells and the development of the battery management system, algorithms, and the software, that’s all in-house. All the testing, all the validation. We didn’t think that we could wait and rely on third parties to develop software for us. So when we formed the company, we bought a company that did that as good as I would say anyone in the whole country, maybe the whole world.

And we’ve kind of used that superpower to take the ongoing efforts in our supply chain, particularly around cells, to move cell suppliers who are producing cells that are compatible with our modules and packs, but doing those cells outside of China, and maybe we were treating them as tertiary suppliers, and we simply move them up in our priority as the tariffs move. So that’s been a critical area for us. And I want to say that for any other founders or folks in early-stage companies out there, we’re also seeing a huge benefit of having a strategic investor at Acculon. That’s Terex Corporation, and that relationship is enabling us to leverage a supply chain that is much broader and has much greater purchasing power than little old Acculon Energy would on its own. But again, these are the kind of decisions that we made years ago that we’re just executing on, maybe with a little more fury than we were six months ago prior to the current environment, but put in motion years ago.

Leveraging Free Trade Zones for Cost Efficiency

Betsy Barry

So let’s pick up on that, because I do know that we’ve been proactive in cultivating a diverse supply chain. That’s just a part of the way we do business. And always having our eye on the horizon. I think that’s also just the kind of beauty of being in a nimble situation like Acculon is. But I know that we’re doing some specific things as a result of the tariff situation, and one of those is pursuing a free trade zone, an FTZ designation under Central Ohio’s trade zone 138. So, can you talk a little bit about how this designation was approved, how it’s going to help us and help our customers, and kind of inoculate us against this tariff uncertainty and enhance cost efficiency?

Andrew Thomas

Yeah, think the foreign trade zone designation helps businesses like ours in two scenarios. Scenario number one is if you’re a U.S. business assembling or manufacturing a product in a foreign trade zone and exporting it, it is admitted into the country without passing through U.S. customs. And then it is not subject to duties and tariffs. If you’re exporting, you’re good. So for our customers who maybe are integrating our battery systems into their equipment outside of the United States, or maybe they’re a consumer of batteries for a backup power system in a data center or a hospital, or other mission-critical type applications outside of the US. We’re able to avoid this whole conversation on tariffs and duties through the foreign trade zone designation. Kind of the second scenario, where the designation is helpful for businesses like ours, is for customers who will take a component like our batteries, integrate it into their system or solution in the United States, and then export the entire solution outside of the United States. You’re able to transfer goods from a foreign trade zone to a foreign trade zone without incurring the duties and tariffs. Those are two pretty good wins for businesses that are exporting their technology and products outside the United States.

The Future of Energy Storage Amidst Tariff Challenges

Betsy Barry

So that’s interesting. And I wonder if this isn’t something, mean, know, tariffs were like a byline on a budget until recently. But I feel like these are strategies that are kind of, you know, being pushed along by the current situation, but that also are just sort of good strategic planning, regardless of kind of what’s happening in the trade policy out there.

So could you speak just a little bit to kind of maybe the combination of pursuing a free trade zone and also pursuing diversified supply chains and kind of moving away from over reliance on one specific country, for example. Can you talk a little bit about how these, you know, businesses like Acculon were just kind of strategically combining all of these things in order to come up with a solution that’s not only going to help us in today’s kind of fluctuating global tariff scenario, but just become a better sort of steward to the transition to something like energy, resiliency, and security domestically. You know, how do all these things kind of work in concert to propel a company like Acculon, specifically in the battery industry, where we’ve talked about, we kind of feel like there’s enough momentum behind this industry to keep us moving forward. Just particularly, how do you think that the strategies that we’re employing right now are not just good in this environment, but just good for the battery, the global battery industry in general, if that makes sense?

Andrew Thomas

Yeah, I think I got it. The last thing that those of us who have been in electrification for a while want to see is another false start. And it doesn’t feel like the demand, absent tariffs, was a false start. And there have been some false starts in the industry caused by, hey, people are trying to produce an electric car for the first time, and maybe it doesn’t perform that well. Or maybe they can’t produce it with great quality and end up with a strong user experience. It doesn’t feel like we’re in that part of this era anymore. It feels like everyone’s trying to mitigate the tariff impact to again, to reach the point where, hey, there’s stable production of these goods and stable pricing of these goods to allow the adoption curve to continue as it was. And I think for businesses like ours, you’ve got to pick your, you can’t do everything. You’ve got to pick your couple of strategies. You’ve got to grab those hammers, and you have to swing as hard as you can. So for us, you know, the foreign trade zone designation helps the two scenarios that I mentioned. then otherwise, yeah, there’s, you you’re not, it’s about supply chain, but it’s not about creating a diverse supply chain where you have, you know, three suppliers for injection plastic molded parts in China and three suppliers for printed circuit boards in China and three suppliers for battery cells all in China. You know, that’s not the…that’s not the current definition of supply chain diversity. We’re talking about real diversity, where you have suppliers of different sizes in different countries that are all able to meet a quality spec for the given component that we design and source from them. That’s been a big activity that, again, we have our own focus and our own network, and then have the great benefit of being able to leverage the network of strategic partners and strategic investors.

Betsy Barry 

I think, too, of the supply chain, global and domestic manufacturing. I mean, we’re not so far off from a huge shock, which was COVID. This is another, I think, kind of shock to the system of, you know, just kind of the global movement of products that is creating, I think, just if I don’t want sound kind of Pollyanna about this, but it’s creating maybe an environment of kind of dogged resiliency, you know, like being strategic about tariffs where we didn’t have to do this a year ago, but it creates a downstream effect that is ultimately positive, I think is what I’m hearing you say. And that over-reliance on any, you know, we’ve learned some hard lessons in the past five to six years…

Andrew Thomas

Mm-hmm.

Betsy Barry 

…about over-reliance on certain geographical regions, and that I feel like this is kind of just the next iteration of strategic resiliency, I guess, for lack of a better concept.

Andrew Thomas

Yeah, and I think there’s a lot of focus on it being on this concept of resiliency, particularly around energy being driven by governments. But as a business owner operator, it’s as applicable for us as for anyone. We have a mission for our employees, for our customers, and for the people who have backed us over the years. We have to do our job for all those stakeholders, too.

The Dual Strategy of Incentives and Tariffs

Betsy Barry 

Mm-hmm. Yeah, I think that that’s a good point, but I feel like that we’re in a place right now where I think that you said it best that we’ve, we’re not, you know, the momentum is there and the will, I think, even if the political kind of landscape shifts and it doesn’t seem like maybe the political will is, you know, behind us, but I do think that there’s something sort of, know, the train’s pulled out of the station and, you know, as far as energy, the energy storage sector and its intersection with the energy sector, I feel like, you know, there’s nowhere to go but forward. You know, it’s an imperative, almost maybe for lack of a better way to think about it. 

So speaking of that, what do you think the impact is going to be on energy storage? What are our industry, not just the global business environment, but what do you perceive for the energy storage industry at this juncture, looking out on the landscape?

Andrew Thomas

Yeah, I think it’s fair to say it’s a little complicated.

But I see this current tariff environment as being the stick on the other side of the carrot that was kind of put out there by the prior administration, the Biden administration, who used things like the infrastructure bill to create incentives for domestic production of…

Betsy Barry 

Mm-hmm.

Andrew Thomas

…energy storage materials and systems. And this is the other side of it saying, hey, if we’re really gonna, know, it sounds like part of the belief is if we’re really gonna be competitive and if you’re really gonna, you know, onshore the manufacturing and delivery of energy storage systems that you kind of got to level the playing field is one way to look at it against countries that currently have dominant market share in the United States for supplying that particular technology. 

Betsy Barry 

That’s actually a good way to put it, that we had sort of the manufacturing incentive, but this is the supply chain incentive. And both of those things really are a feedback loop when you’re talking about manufacturing battery packs and modules, for example.

Andrew Thomas

Yeah, yeah, think it’s two different strategies that are being tried and, you know, to be curious to see if they happen in tandem, but eventually, both would seem to demonstrate the value of making energy products in the United States, and that applies to batteries.

Betsy Barry 

Yeah, think maybe, hopefully we’ll get a little more carrot on the supply chain side than stick. But we’ll see, I guess, tomorrow is a different day. But it does kind of help. I think about this when you and I had a call with tariff experts yesterday, and they’re scratching their heads too. So we’re all just kind of in the same boat, trying to navigate the choppy waters the best we can, but I do think that there’s always, putting a microscope on this is a very good learning experience. I think it’s gonna help us when we start to comply with battery passports. I feel like there’s a downstream impact of this focus on supply chains, content sourcing, et cetera, that’s going to actually smooth out some, you know, things in the future. Like I’m thinking specifically of the European environmental regulations that are coming on, that are being rolled out over time. You know, this is gonna, I think, you know, how can this not help expedite that?

Positive Outcomes from Tariff Pressures

Andrew Thomas

Seems like it. You know, as talking specifically about us, you know, I’m just trying to encourage our whole organization to view this pressure test as a positive, right? Would we be doing all of the things that we’re doing today ⁓ at the same speed? No, we wouldn’t. But I mean, we’re in a battery pack program where this summer, we’re delivering battery systems with 100 % US content. I mean, that’s tremendous. It’s unthinkable that you could do something like that even five years ago. And even in our kind of day-to-day products, a transition is well underway from our activity.

Betsy Barry 

Yeah. It is.

Andrew Thomas

To take our reliance on our input, you know, the bill of materials, well south of 40 % coming out of China. You know, yes, you’ve got to do the foreign trade zone, and that’s helpful in a few scenarios, but you’ve got to put the blocking and tackling together in your supply base to be in this kind of position. I view the exercise, regardless of how it comes out, when the dust settles on tariffs, it will have been positive for the company and just positive as business people and as people that, hey, yeah, this is something else that came up that we solved.

Betsy Barry 

Yeah, I agree. I think that is absolutely true. And maybe that’s a good place where we end our conversation, unless you have any parting words of wisdom for all of us looking at the glass half full as we expand our knowledge on international trade policy in ways that we never thought we would do. 

Andrew Thomas

Yeah, and the question is, is our glass half full because we’re a couple of days into a 90-day moratorium? 

Betsy Barry 

That’s right. And what is it half full of? Maybe it’s a stiff shot of bourbon at this point. But maybe not. Let’s be hopeful. A celebratory shot of bourbon. How about that? Maybe we end on an optimistic note.

Andrew Thomas

Right. Yeah, I like that a lot.

Betsy Barry 

Great! Well, Andrew, thanks for taking time out of your schedule to chat with me about tariffs. And yeah, I hope that we’ll reconvene at a later date to just have a different kind of a normal meet-the-experts kind of chat. But I think that this was pretty apropos considering the times that we’re living in. So I just appreciate it. I appreciate your time.

Andrew Thomas

Yeah, we’re all tariff experts now. All right. Thank you.

Betsy Barry 

Yeah, great. All right, thanks.

Bye!