ESS Tech Is A High-Risk Investment That May Reward A Patient Investor

seekingalpha11-19

ESS offers iron flow batteries for utilities, providing a cost-effective, non-toxic, and durable energy storage solution with a 10-year performance guarantee.ESS's technology is ready for market, with...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nESS Tech Is A High-Risk Investment That May Reward A Patient Investor\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-19 21:33 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4738640-ess-tech-high-risk-investment-reward-patient-investor><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>ESS offers iron flow batteries for utilities, providing a cost-effective, non-toxic, and durable energy storage solution with a 10-year performance guarantee.ESS's technology is ready for market, with...</p>\n\n<a href=\"https://seekingalpha.com/article/4738640-ess-tech-high-risk-investment-reward-patient-investor\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4096","symbol_name":"电气部件与设备","start_time":0,"source_url":"https://seekingalpha.com/article/4738640-ess-tech-high-risk-investment-reward-patient-investor","article_id":"2484941201","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2484941201","pubTimestamp":1732023216,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"ESS offers iron flow batteries for utilities, providing a cost-effective, non-toxic, and durable energy storage solution with a 10-year performance guarantee.ESS's technology is ready for market, with revenue expected from upcoming sales and strategic partnerships enhancing their global reach.The global demand for long-duration energy storage is projected to reach, 1000GW by 2030, presenting a significant market opportunity.High competition and the need for cost reduction pose risks, but ESS's first-mover advantage and robust technology offer the potential for high returns for contrarian investors.   PhonlamaiPhoto  ESS Tech, Inc.  is a technology company looking to sell iron flow batteries to the utilities sector. Not the sexiest technology stock, but there may be significant upside for investors prepared to hold long term. What is the value proposition for utility batteries?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4096":"电气部件与设备","GWH":"ESS Tech Inc."},"translate_title":"ESS技术是一项高风险投资，可能会给耐心的投资者带来回报","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"GWH":0.9},"content_text":"ESS offers iron flow batteries for utilities, providing a cost-effective, non-toxic, and durable energy storage solution with a 10-year performance guarantee.ESS's technology is ready for market, with revenue expected from upcoming sales and strategic partnerships enhancing their global reach.The global demand for long-duration energy storage is projected to reach, 1000GW by 2030, presenting a significant market opportunity.High competition and the need for cost reduction pose risks, but ESS's first-mover advantage and robust technology offer the potential for high returns for contrarian investors.   PhonlamaiPhoto  ESS Tech, Inc. (NYSE:GWH) is a technology company looking to sell iron flow batteries to the utilities sector. Not the sexiest technology stock, but there may be significant upside for investors prepared to hold long term. What is the value proposition for utility batteries? The times at which electricity is produced do not match the times at which electricity is used. Nuclear and hydropower stations operate all night because you can’t just turn them off when demand is low. Renewable energy sources such as solar panels only produce electricity during the day, yet power use generally peaks in the early evening when everyone gets home from work, plugs in their electrical devices and makes dinner. The mismatch between the times electricity is produced and the times electricity is used leads to curtailment, where power is produced but not used. Both the Midwest and California produce large amounts of electricity that are curtailed. US Energy Information AdministrationUS Energy Information Administration Batteries can save this unused electricity until it is needed. This reduces the total amount of electricity that needs to be produced to meet the forecast increase in demand from new data centers for AI. Batteries for utilities are called Energy Storage Systems (BESS or ESS), the source of the name of this company. They are used to create Long Duration Energy Storage (LDES) solutions. There is a large opportunity for the development of utility batteries. The International Energy Agency (IEA) estimates that up to, 1000GW of battery capacity will be installed globally by 2030. The need for this technology already exists, we are just waiting for the technology to mature. Comparison of the technologies used in energy storage systems Lithium batteries are the technology most used in existing battery energy storage systems. The key drawback is the cost, which is driven by the cost of lithium. Although lithium batteries have reduced in price in 2024, they still have a higher capital cost than other battery technologies (see below). This cost will limit the widespread use of batteries by utilities, especially in countries with less income. The batteries produced by ESS Tech, Inc. are iron flow batteries. The key difference to lithium batteries is the cost of the materials used to construct the battery, as iron is significantly cheaper to purchase. ESS Tech, Inc. estimates that an iron flow battery will be 20% of the price of a lithium battery when manufactured at scale. Although the amount of energy they can store is less for a similar weight and size than lithium, this is not a significant drawback for a utility battery, as utility batteries will be permanently located where there is a suitable connection to the electrical grid. The other advantage of iron flow batteries is that they last for more than twenty-five years. Companies are also developing a multitude of other types of batteries, including sodium flow, vanadium flow, nickel flow, gravity/kinetic, heat, and gas compression to name a few. The most recent analysis (August 2024) by the Department of Energy estimated that flow batteries (the category that ESS Tech, Inc.’s batteries fit in) are likely to have one of the lowest levelized cost of service for electricity (LCOS). This is important, as the LCOS is an industry standard calculation that includes all the costs to deliver each kWh of electricity. The two lowest cost technologies, compressed air and pumped hydro storage, are likely to be preferred to flow batteries where possible but will be limited by the specialized locations they require: compressed air needs airtight natural caverns, and pumped hydro needs a suitable location and water supply for the reservoir. US Department of Energy Why ESS Tech, Inc. over the other companies? ESS Tech, Inc. has technology ready to be sold to paying customers. Their most recent quarterly update stated that revenue from units manufactured at their manufacturing facility will be recognized in the next quarter. These will go to an Australian company, Energy Storage Industries – Asia Pacific, who licensed the Oceania rights to manufacture and sell iron flow batteries. The batteries have key characteristics that, I think, will be preferred by customers. The materials used in the battery are not toxic (iron, salt, water), so if a battery were damaged, it would not cause a toxic spill. This provides an advantage over their nearest flow battery competitors that use vanadium, that is toxic if spilled. The materials used mean that they are not flammable and don’t need to worry about supply chains. The batteries are certified as safe for use in earthquake prone areas of the world. The batteries are more robust for use in different locations globally than some other technologies. The operating range of the batteries is 40-120°F (5-50°C), so doesn’t need air conditioning to work in hotter conditions. They are also expected to maintain full discharge capacity, unlike the lithium battery in your phone or car, which loses capacity over time. Finally, they have a 10-year performance guarantee from Munich Re, that suggests that Munich Re is confident that the technology will stand the test of time. They have attracted investment from Honeywell (HON), who have a business unit specializing in energy transition. This will provide a global network to resell ESS Tech, Inc.’s batteries along with their own control software products. They received a finance package from the Export-Import Bank of the United States (EXIM) Board of Directors under the Make More in America Initiative. It will be used to further expand their manufacturing facilities. Financial position is as expected for a firm moving from research to production ESS has finished building their factory in Oregon and is now ramping up production. I would expect revenue to be substantially higher in 2025. Costs are currently higher than revenue, due to increases in inventory and timing differences between the construction of units and the time revenue is recognized. This is expected for a company transitioning to production, but will require patience from investors. For 3Q 2024, revenue was $355k and $2.9m for the year to date. The net loss for the quarter was -$25.2m and the loss year to date is -$62.7m, corresponding to EPS of -$1.90 and -$5.35 respectively. The net cashflow is not as bad, as the loss includes $8.5m in stock-based compensation. Not pretty figures to see in a company that you are thinking of investing in. Their position is not as bad as it first looks. The results announcement for the 3Q 2024 included two key pieces of information. Revenue for the year is expected to be $9-11m, as there was a delay shipping units that are now sent. And they have received only $20m of $50m of the finance package from ECIM, so there is $30m in committed funding yet to be received. When this information is combined with the $54m in cash and short-term investments on the balance sheet, it is clear that ESS Tech, Inc. has sufficient cash to operate for at least the next year even at the current burn rate. ESS looks to be a better investment than its closest competitors The potential for battery energy storage systems is clear, but there are multiple technologies competing in this space. I see ESS Tech, Inc.'s key competitors as EOS Energy (EOSE), who build zinc-based batteries, and Energy Vault (NRGV) who construct energy systems from the products of other companies and sell gravity-based batteries.   Seeking Alpha data, compiled to table By comparison, ESS's warrant holders could increase the total shares outstanding by approximately 17% (based on the ESS Tech, Inc. Annual Report 2023). Energy Vault's shares are down -39% this year. They are following a different strategy to ESS Tech, Inc., as they are earning revenue constructing energy systems with products made by other companies while they work on their own gravity-based products. They recently signed a $350m deal in Australia (Seeking Alpha article). However, this deal is for packages that include lithium phosphate batteries from other companies, so is not indicative of the value of their proprietary battery technology. Valuation The value of this company will greatly depend on the path over the next year and what pathway they choose to increase funding (they intend to do this in the next twelve months, but have not yet decided how). So my valuation is a point in time valuation with a high level of uncertainty. As an unprofitable company holding a substantial amount of cash, my preferred method of valuation is EV/sales. In the last investor call, management suggested an increase in revenue of $30m in 2025 to around $40m. ESS has a current EV/Sales of 1.4, and a forward value of 0.9, against the sector median for industrials of 2.0, suggesting a 220% upside for 2025 to $11.40. However, this value is sensitive to the cash balance remaining at the end of the year. ESS is very expensive on a price to sales basis at 9.8 (TTM) and 6.4 (FWD) versus a sector median of 1.6. However, ESS Tech, Inc. is a company with the potential for high grow for the next ten years, so the high multiples are justified against an industrials sector that is on average not expected to grow significantly. Wall Street analysts have a target price of $10.50, that it came close to before the most recent earnings announcement. It has since sold off $5.21 (as of 15 November 2024), which I think creates a buying opportunity. The expectation of revenue growth in the most recent earnings caused the price to double going into the quarterly earnings announcement, but it then sold off when the revenue didn't eventuate. But this revenue is still going to be booked, just a quarter later than expected. Seeking Alpha Risks and Mitigations The biggest risk is the competition. There are hundreds of companies globally, all trying to develop battery technology, with lots of new innovative ideas. Some of these companies have deep pockets supporting them and may find a lower cost technology with a better storage capacity. This risk cannot be mitigated, but based on the information currently available, ESS Tech, Inc. will have a first mover advantage. There is also a large market for long duration energy storage globally, which could easily generate profitable opportunities for more than one company. The further development of ESS’s technology and their ability to profitably reach a competitive price point per kWh for their technology may limit their success. In the electricity space, cost competition means that the lowest-cost and reliable technology will win most of the long duration energy storage business. This will be particularly relevant in developing countries, where a large opportunity exists for renewable energy and batteries due to their under-developed electricity networks. There is also a risk that the change to the government may reduce the appetite for renewable energy investments. However, the levels of curtailment that exist from existing renewable assets suggest that investments in long duration energy storage will be profitable, even without subsidies. ESS also has the potential to grow outside of the USA, in Australia (through ESI Asia-Pacific), Netherlands (Schiphol test unit) and Africa (via USAID). Summary ESS makes LDES systems for utilities that use iron flow technology. This technology is ready to be sold now and has price advantages and performance characteristics that mean it is likely to be preferred over alternative technologies. The amount of competition to make battery energy storage systems, and the need to continue cost reduction efforts, mean that there is a high risk that the share price declines if management are unable to execute their strategy. ESS is a contrarian high-return investment, but it is likely to need patience and a long-term investment horizon to realize its full potential.  Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2484941201"}