ENVX - Enovix Q3 Earnings: Accelerating Towards Modern Battery Dominance

2023-11-08 09:15:04 ET

Summary

• Enovix Corporation is a pre-revenue business focused on building large battery volume production to meet demand from global OEMs.
• The company's advanced battery technology is expected to deliver over 30% more capacity compared to current lithium batteries, positioning them for growth in the smartphone and EV markets.
• Enovix has a robust cash balance and does not need to raise additional capital in the near term, providing an advantage in the current financial landscape.

Investment Thesis

Enovix Corporation ( ENVX ) is a pre-revenue business. This means it doesn't have revenues right now.

The business is working hard to build large battery volume production to meet the demand from the largest global OEMs. They are seriously focused and determined to keep their cost structure under control and, according to my estimates, Enovix will not need to raise any further capital in 2024.

I continue to believe, as I've done for some time, that this business is highly compelling. Even as I remark it will take at least into 2025 until this business starts to report any meaningful revenue from its battery commercialization.

Brief Recap of What Enovix Seeks to Accomplish

Not everyone knows that Enovix story. Therefore, as briefly and succinctly as possible these 5 sentences lay out the background.

Enovix is seeking to develop and commercialize a modern lithium battery that has more capacity. They believe their results show that their batteries hold 30% more capacity than the best modern lithium batteries. And as a consequence, when they get to scale, they'll be able to sell to mega-cap OEMs, seeking a reliable supply of lithium batteries. The advantage of holding more battery capacity is that as devices demand more horsepower, the battery is the limiting factor to unlocking a device's full potential.

The bearish argument, aside from the fact that Enovix isn't reporting ''serious'' revenues, is that they will struggle to ramp up battery production on time and on budget. Also, bears declare that Enovix will not succeed in ramping up production enough to be taken seriously by the largest global OEM, seeking a reliable modern lithium battery supply.

Enovix's Near-Term Prospects

Enovix's near-term prospects appear promising, driven by strategic initiatives, technological innovations, and strong financial performance.

With the successful transition to a more cost-efficient manufacturing model and the acquisition of Routejade, they have streamlined their operations and expanded their capabilities, allowing for increased margins and faster product development.

Notably, their advanced battery technology, particularly the EX2, is poised to deliver over 30% more capacity compared to the current baseline, catering to the increasing demands of the smartphone market and potentially positioning them for growth in the larger EV market.

Moreover, Enovix finishes the third quarter with $370 million. Given that the business is on a path towards a cash burn of around $170 million per year, this implies that for now, at least over the next year, Enovix will not have to raise any more capital .

This is an important consideration, given how restrictive financial conditions are at the moment. Also, Enovix sought to be very transparent and address the question head-on, of when we should start to see consistent revenues. Realistically, there will be no revenues until 2025 . At least not of any significance.

To be clear, in the interest of transparency, I had previously stated that Enovix would start making revenues towards the back end of 2024, and that target has now been pushed back.

Noteworthy Bearish Aspects

In an attempt to slow down its cash burn and until Enovix can reach its required battery unit production of millions of battery units, Enovix is in the process of closing down its Californian-based Fab1 facility.

But starting production in Malaysia, on its Fab2 facility will take time. Something that investors are unlikely to be keen to give Enovix.

The other contentious aspect facing Enovix is that there is considerable doubt whether this team will succeed in reaching battery yield production of 90%. Again, Enovix argues that by 2025, they'll have ironed out their manufacturing and that they will succeed in reaching even the high 90% yields.

The Bottom Line

Enovix Corporation, despite its current pre-revenue status, presents a compelling long-term investment opportunity, supported by its determined efforts to secure large-scale battery production and cater to the demands of major global OEMs.

While acknowledging the extended timeline for meaningful revenue generation, Enovix remains committed to commercializing their high-capacity lithium batteries, expected to offer a significant 30% increase in capacity compared to the industry's best lithium batteries.

Notably, the recent acquisition of Routejade and the successful cost-restructuring efforts underline the company's commitment to operational efficiency and sustained growth.

With a robust cash balance of approximately $370 million, Enovix is poised to navigate its path to commercialization without the immediate need for additional capital, a significant advantage in the current financial landscape.

For investors that have the stamina to stick with a business for more than 12 months, I believe this provides a very compelling entry point for Enovix Corporation shares.

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