SLDP - Solid Power: Still Too Many Unknowns

2023-05-23 14:43:38 ET

Summary

• Today, we shine the spotlight on Solid Power, an emerging battery concern hoping to serve the electric vehicle manufacturing sector.
• The company just brought on a much-anticipated production facility and its balance sheet is in good shape to support its build out.
• Are Solid Power shares investible yet? An updated investment analysis follows in the paragraphs below.

"We have to continually be jumping off cliffs and developing our wings on the way down. " - Kurt Vonnegut.

It has been nearly a year since we posted our first article around Solid Power, Inc. ( SLDP ) . We concluded that initial piece around this electric vehicle ("EV") battery concern in the following way:

2022 will be a year the company continues to build its manufacturing facilities and perfects its core product line. The first deliveries of which to OEMs is expected late this year. The company's balance sheet is in a good place and funding is in place to put Solid Power's manufacturing footprint in place.

That said, it will be years before real revenues start to accrue. Given this, the stock of Solid Power is likely to move with the ebbs and flows around the EV space. Given the current dismal state of the overall market right now, I see no reason to own SLDP at the current time ."

That was the right call, as the stock has slid some 60% from when we first highlighted this name. Is the stock finally in the 'buy zone'? An updated analysis follows below.

Company Overview:

Colorado-headquartered Solid Power, Inc. is focused on the development and commercialization of all-solid-state battery cells and solid electrolyte materials for the battery-powered electric vehicle market. The stock currently trades around $2.25 a share and sports an approximate market capitalization of $350 million.

First Quarter Results:

Solid Power, Inc. reported its first quarter numbers on May 8th. Solid Power had a GAAP loss of 11 cents a share, in line with the consensus. This equates to a net loss of $19.2 million for the quarter. Revenues rose 72% on a year-over-year basis to $3.8 million, largely in line with expectations.

Analyst Commentary & Balance Sheet:

Since March, Citigroup ($3.50 price target), Stifel Nicolaus ($3.50 price target), and D.A. Davidson ($3.00 price target) have maintained Hold/Neutral ratings on the equity. Only Needham ($4.00 price target) has stuck with their Buy rating on the company.

Approximately seven percent of the outstanding float in SLDP is currently held short. On March 10th, a company director bought just over $600,000 of the shares at $2.92 per. That is the only insider activity in the stock since August of last year. Solid Power ended the first quarter with nearly $470 million in total liquidity .

Management stated on its earnings press release that " cash used in operations in FY2023 will be between $70 million and $80 million, and capital expenditures will range from $50 million to $60 million."

Verdict:

The current analyst firm consensus has Solid Power, Inc. losing 46 cents a share in FY2023 as revenues rise nearly 45% to nearly $17 million. Analysts project similar losses in FY2024 on revenues approaching $20 million. The company's current revenue stream consists largely of government contracts and a recent agreement with BMW ( BMWYY ) that brought in some money last quarter. Provided Solid Power can hit specific benchmarks, BMW will pay out $20 million to Solid Power through the first half of 2024.

The company has had to navigate through a variety of issues (permitting, supply chain, labor, construction, etc...) as it continues its journey to a full-fledged manufacturing of batteries for the EV industry. It has largely been operating a pilot production line to this point from its SP1 facility in Colorado. Solid Power did just commission their SP2 electrolyte production facility in April. When we last wrote about Solid Power that was due to come online late in 2022. This expands the company's potential production by multitudes. When fully operational, the facility should have to produce approximately 300 large-format sulfide-based cells per week for EV makers. Management will now transition its large-scale power production from SP1 to SP2, which will supply powder for their 20-amp hour and EV cell production.

Management is positioning Solid Power for entry into automotive qualification later this year and will ship A-sample EV cells to its OEM partners by the end of this year. Solid Power's current customer focus is on auto OEMs, current battery producers, and developers of new battery technology.

The company continues to face many challenges ahead. These include, but are not limited to, scaling up from 20-amp hour cells to more complex EV cells as well as integrating the powder produced at the new SP2 facility into the company's operational processes. Solid Power also has to critically test its new products at customers' battery production facilities. Limited capacity within these organizations may delay their ability to test Solid Power products.

Solid Power, Inc. seems to be making some progress on myriad fronts. It has a solid balance sheet as well. However, it is quite challenging to come up with an accurate production timeline given all the unknowns on when full scale production will be achieved or what the sales ramp will look like. Add in the fact, Solid Power, Inc. still has not found a permanent CEO yet. Therefore, there continues to be too much uncertainty around Solid Power's long-term future to merit an investment at this point in time.

"Life is infinitely stranger than anything which the mind of man could invent. " - Arthur Conan Doyle

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