Generac Is Selling Into Perfect Storm Of Opportunity

Electrification of the economy is taking on some obvious forms, such as the boom in electric-car production. But Generac is a company participating in another profound type of change when it comes to electrification: the decentralization of electricity production.

The $3.7-billion maker of backup electric generators based in Waukesha, Wisconsin, saw sales increase by about half last year thanks to exceptional demand for generators that residential and commercial customers worldwide purchased to cope with extreme weather and natural disasters, as well as a boom in U.S. consumers who installed Generac equipment in existing or new homes. The latter is making backup generators a de rigueur amenity in many American houses, much as jet tubs used to be.

“We’ve found ourselves in the unique position of being in the vanguard of being able to provide resiliency for people when it comes to electric power,” Aaron Jagdfeld, Generac’s president and chief executive officer, told Chief Executive. “As the world continues to move toward greater and greater electrification of everything in homes, and transportation, and as we move toward EVs, having a continuous source of power has taken on an importance for most home and business owners that it didn’t have before.”

The company has responded to the unprecedented demand with plans to boost the size of its manufacturing, assembly and distribution complex in Trenton, South Carolina, by nearly 50%, adding 200,000 square feet to the building by this fall, as well as by announcing a plan to invest $53 million in its Wisconsin manufacturing, R&D and office operations.

“A generator is kind of a new must-have appliance if you’re building or remodeling a home,” Jagdfeld said. “People are experiencing more outages as the grid continues to age.”

There are three main reasons for the demand Generac is experiencing, he said. First, “There’s been a lack of investment to maintain the reliability of the grid. It’s been winnowed down over the last 30 years to more of a break-fix level: Something breaks, and the grid fixes it. We haven’t been investing proactively for the future.”

Second, Jagdfeld explained, “Severe weather is becoming a bigger factor. Weather plays a major role in most outages; about 70% of them are due to some weather event, like a hurricane, or even and everyday thunderstorm in the summertime. Those things are happening more frequently and lasting longer in duration. Those statistics are borne out by utilities” and federal agencies.

“I’m not a climate scientist or a meteorologist, but weather is becoming a bigger factor in terms of severity. Big events used to be every 100 years, but now they’re every three and five years, or every year. You can point to climate change underpinning that, in air and water temperature changes. There’s more volatility than historically. It’s a more recent phenomenon, but it’s real. And the grid is vulnerable to weather.”

The third factor, Jagdfeld said, is a result of the fact that utility operators are “under stress in terms of the need to decarbonize their power sources. They’re retiring baseload power sources like coal and natural gas in favor of new baseload sources such as utility-scale solar and wind. But those sources are more intermittent, so there’s more potential for volatility, So on the input side, there are more volatile sources, while on the demand side, it’s growing as we electrify everything in our homes.”

Much of Generac’s sales growth is in the Sun Belt, which is a main reason the company is expanding its facility in South Carolina. “These are machines that weigh 500 pounds, so logistics cost matter,” he said. “Being closer to end-market demand made sense for us, so we can serve customers more quickly and more efficiently.”

As Generac leans into its fast-growing market, success in meeting the market will depend more and more on an automation mindset that the company has had all along, even though its home market of Wisconsin provides one of the strongest skilled-worker pools in the world.

“Automation has become a critical tool in the tool kit for all companies as labor has become scarce,” he said. “Our journey over the last decade has really been about using automation to automate and replace human labor where we can, and to aid in our growth. And they’re maybe one in the same, because the growth that we’ve been going through rapidly and at scale gives us the ability to automate.”