EADSY - Amprius Technologies: Silicon Tech Is Quality But No Financial Transparency

Summary

• Amprius is a developer of batteries that use silicon anodes rather than traditional graphite.
• This provides unique differences to performance that the company can leverage for growth.
• Early development has been with partners such as Airbus and the US Army, and success may lead to stable, predictable long-term contracts.

Introduction

Finding a niche is an important way to reduce competitive effects, even in quickly evolving and expanding industries such as battery tech. Amprius Technologies ( AMPX ) offers both a unique anode design and exposure to different revenue segments than peers, increasing the probability of long-term success. While full-scale manufacturing is not yet underway, developments have been underway for the better part of the last decade. This article will discuss the current advantages, developments, and opportunity of an investment in Amprius.

As an early-stage commercial company, investors must be aware of Amprius’ risks. One factor I will discuss is the necessity to acquire funds for expanding production, an area that is little discussed in presentations. With only $5 million in the cash on the balance sheet, this may be another Eos Energy ( EOSE ) situation where shareholders will face debt and dilution. However, when compared to the valuations of other more popular pre-commercial silicon battery manufacturers such as Enovix (ENVX), I believe that there may be an increased margin of safety of the investment.

Qualitative Advantages of Silicon Anode Technology

A recent development in the battery industry is the potential shift from graphite to silicon anodes as a way to improve capacity, charge speed, and longevity. In 2014, Amprius finalized their silicon anode designs and have slowly ramped up small-scale manufacturing starting in 2016. Now as clients have prototypes and early-production products tested and approved, Amprius is looking to expand to GWh scale. One issue that has been brought up by prior contributors is the fact that the production technique of “silicon nanowire” anodes takes more time than other anode producers such as Enovix, and so the scale up in revenues will never be at a groundbreaking pace.

The current data on Amprius’ batteries is published well in their current investor presentation, and have been discussed in detail in the linked article (see above). However, I will summarize the key points. First, silicon has the advantage of capacity, power, and charge speed. Otherwise, the technology seems to be based on similar features for the other battery cell components, allowing for similar physical properties to graphite competitors.

The second image does well to highlight what the technical data equates to in actual use situations. In time, we will likely also see performance comparisons with other silicon anode peers, rather than just graphite anode tech. And, the data does not take into consideration quality issues that may arise from higher volume manufacturing, global sales, and real-world conditions. However, the data suggests there is plenty of advantage over legacy battery tech and these issues do not detract from the sales capability.

Without any other mature silicon anode competitors on the market, we do not know whether the value is there economically. Will endpoint manufacturers be willing to pay a premium for the significant advantage that silicon anodes allow? Or will silicon battery manufacturers face profitability issues compared to legacy graphite peers? These are risks that must be considered and factored into the price. With no company indication of any form of future cash flow expectations, we must be aware that any value might be overvalued.

Amprius is aware of the risks of slower production time and competition, and has worked to negate these issues by becoming a niche supplier for a few speculative industries. AMPX realized silicon’s strong technical advantage would work well under specialized military specifications. As such, the team has worked with the US military and defense contractors such as Airbus ( EADSF ) for applications in unmanned aerial systems and pseudo-satellites.

Other areas of expansion include even novel battery-based air transport (small planes/helicopters) and EVs. However, initial revenues are currently, and will likely remain, majority based on UAS and HAPS. By focusing on these markets that competitors have yet to enter, Amprius allows themselves room to breathe without requiring extreme losses from heavy investment.

Financial Update

After the SPAC deal completed last quarter, Amprius is set to have $82 million in cash for the further scale up of operations (up from only $5 million prior to the IPO). The company also has a few (~$2) million in sales per year from current small-scale contracts and production, but losses remain negative (~$7-10 million per year). This level of cash will sustain operations for some time, but I do not know how much the new production facilities will cost. According to the recent press release on the hiring of a new VP of Infrastructure :

The decision to appoint Huie is well-timed following Amprius’ recent entry into the public markets subsequent to the close of its business transaction with Kensington Capital Acquisition Corp. Amprius began trading on the NYSE under the ticker “AMPX” on September 15, 2022, and plans to use the proceeds of this transaction to accelerate the construction of the new high-volume manufacturing facility in either Texas or Georgia, significantly expanding its production capabilities. Huie’s appointment signifies Amprius' investment of an executive to lead this critical commitment to our stakeholders.

As you can see, Amprius still has not decided on a location for a high-volume expansion facility, so it may be some time before we see a ramp up in revenues. I would also look for the company to not exceed the $80 million dollar mark without securing additional funding as then shareholders will begin to suffer dilution. The uncertainty is one understandable reason for why the company is only valued at $600 million compared to no-revenue battery companies that are well over $1.5 billion. However, there are a few other sources of income and accolades that investors can look to for support and/or confirmation of the technology:

• $3 million USABC contract award for automotive battery applications.

• An 18-month rapid prototyping contract with US Army

• Innovative Supplier of the Year Award 2021 with Airbus (out of 10,000 suppliers).

• A supply contract with Kraus Hamdani Aerospace for unmanned aerial systems.

Conclusion

Amprius checks off many strong qualitative indicators thanks to their tech, relationships with niche partners/industries, and recent boost of IPO cash. I look forward to seeing what their plans are for their future expansions and believe they have a good chance of becoming a mature member of the battery industry.

However, there is a lack of enough financial detail to be confident in any valuation. As we wait for the initial earnings report as a public company and further beyond that, I will hesitate to provide a bull or bear outlook on the company. I will, however, keep an eye on developments and use the time to continue researching the industry. Of course, I will be quick to update if any significant news arises.

Thanks for reading. Feel free to share your insights below.

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