An AI data center boom is fueling Redwood’s energy storage business

Redwood Materials launches energy storage unit

Redwood Materials, the battery recycling startup founded by former Tesla CTO JB Straubel, has launched a new energy storage business that is now its fastest-growing unit. The move is a direct response to the surging power demands of AI data centers.

The company announced the expansion in a blog post on Thursday. It is backed by a recent $425 million Series E funding round that included new investor Google and existing backer Nvidia, both of which joined specifically to support the energy storage venture.

AI data centers drive urgent demand

The company's energy storage business, called Redwood Energy, launched in June 2025. It aims to solve a critical bottleneck for data center developers: extremely long wait times to connect new facilities to the electrical grid.

"When they're trying to connect to the grid, they are being told it is going to take five-plus years to get that," said Claire McConnell, Redwood's vice president of business development. "At the same time, you're seeing this massive demand to build more data centers and compete in the AI race."

While AI data centers are a primary focus, McConnell noted the systems also support renewable energy projects like solar and wind farms.

Massive R&D expansion in San Francisco

The growth of the new business is physically evident at Redwood's R&D lab in San Francisco. The facility has expanded four-fold into a 55,000-square-foot space that opened in April 2025 and now employs nearly 100 people.

This lab is where engineers integrate the hardware, software, and power electronics for large-scale energy storage systems. The expansion is small compared to Redwood's total workforce of 1,200 and its Nevada campuses, but it is dedicated entirely to scaling the storage unit.

From battery recycling to grid power

Redwood Materials was founded in 2017 to create a circular supply chain for batteries. Its core business involves:

• Recycling scrap from battery production and consumer electronics
• Processing those materials and selling them to customers like Panasonic
• Producing cathodes for new battery cells

The new energy storage arm leverages a key resource: the thousands of used EV batteries the company collects through its recycling operations. These batteries, which are not yet ready for recycling, are repurposed into stationary power storage systems.

First project powers AI data center

Redwood Energy's first customer is Crusoe, a data center startup that Straubel personally invested in back in 2021. The companies deployed an energy storage system using old EV batteries to power a modular data center built by Crusoe.

That initial system provides 12 MW of power with 63 MWh of capacity. It is a fraction of the scale of projects now in Redwood's pipeline, which target hyperscale cloud computing companies.

"We're working on ones in the hundreds of megawatt hours, and we have ones in the pipeline that are multiple gigawatt hours," McConnell said.

Capitalizing on the AI power crunch

The Series E funding provides the capital Redwood needs to scale its energy storage deployments to meet this new demand. The involvement of Google and Nvidia—two companies deeply invested in the AI infrastructure race—signals strong industry belief in this approach.

The company's model offers a dual advantage: it provides immediate, deployable power for data centers facing grid connection delays, while also creating a valuable second life for batteries collected through its core recycling operations.

As the AI boom continues to strain power grids, Redwood Materials is betting that its unique position in the battery supply chain will make it a critical player in keeping the data centers online.