2023-05-02 00:56:12 ET
Summary
- The company's patented B-TRAN technology for power switches and solid state circuit breakers provide it with a competitive advantage.
- The competitive advantage is relevant for a significant number of large and growing markets, like EVs, EV charging infrastructure, circuit breakers, alternative energy and energy storage.
- The company has multiple large global companies in its test and evaluation program, among which to global automotive OEMs.
- The company has just introduced its first commercial product with another one following in Q3/23, with ramp not expected before 2024.
- However, while the shares are cheap in relation to the opportunity, there is no guarantee of mass adoption and the speed of adoption could disappoint.
Ideal Power ( IPWR ) is the developer of B-TRAN. This proprietary semiconductor power switch has advantages in a number of important and growing end markets (EVs, EV charging infrastructure, alternative energy, solid-state circuit breakers, etc.).
The company has just put its first commercial product, a circuit breaker on the market and expects first revenues to come in H2/23 with the ramp occurring in FY24 and a second commercial product following in Q3/23.
The company has won two top 10 automotive OEMs and has a number of other big companies in its Test and Evaluation program, but the road to commercial sales here is considerable, especially in the largest market, EVs where sales are not expected until well into 2025.
With an $85M market cap (fully diluted), IPWR stock is of course hugely overvalued with respect to this or even next year's revenues and profits, but in a couple of years, this could be quite a different story if the technology gets broader traction.
We think the chances of that are pretty good, the companies in their test and evaluation program are all big global players, but mass adoption is not guaranteed. The speed of acceptance might also disappoint, which would force the company to get additional financing (at present they are good for at least the middle of 2024).
B-TRAN
B-TRAN is protected by 72 patents (another 24 pending) and offers important advantages that are succinctly summed up in a recent company PR :
Ideal Power’s patented semiconductor power switch, the Bi-directional Bipolar Junction Transistor, or B-TRAN™, reduces power losses by 50% or more over conventional power switches, depending on the application. B-TRAN™’s higher efficiency results in less heat being generated and therefore significantly lower thermal management requirements, requiring significantly smaller surface area to dissipate heat and giving rise to potentially smaller OEM products. B-TRAN™ offers the industry’s only symmetric bi-directional operation, reducing the number of components required for application by 75% as compared to a conventional bi-directional switch utilizing IGBTs and diodes. This highly efficient and unique symmetric operation provides a strong competitive advantage in bi-directional applications, which are growing rapidly as transportation electrifies and power generation shifts to renewable energy coupled with energy storage.
They go into much more detail in their recently released whitepaper . Much of the advantages stem from the bi-directional nature of the switches, which is essential for numerous applications where currents flow in both directions (charging and discharge, powering and regenerative breaking, etc.).
In light of Tesla's intention to reduce SiC power switches by 75% (no timeline provided), silicon switches like B-TRAN are an order of magnitude cheaper, so there could be an opening here for the company (albeit one that will take time).
In fact, the company won one of these automotive evaluation contracts competing against a SiC solution, a promising sign.
It's also important to realize that when SiC wafers come down in cost (due to increased scale of adoption) B-TRAN can be done in SiC as well. Enphase is working on Gallium-Nitride switches but management argues that for high-power applications these are years off.
Markets
The market for existing (IGBT or insulated-gate bipolar transistor) power switches is growing at 10.6% a year and reaching $11B by 2026. B-TRAN can provide advantages in a number of large and growing markets, the most important of these are:
In addition to these, B-TRAN is also useful as a solid-state circuit breaker and in fact, it launched its first commercial product here in January/23. This is a large market that is scheduled to reach $26B by 2027.
EVs
The largest segment that the company can serve is the EV market.
However, this will also be one of the slowest to develop, as suppliers go through a multi-phase evaluation process that takes years.
The company now has development agreements with two top 10 global automotive OEMs (see here and here ) with Phase 1 already well in progress and expected to end in Q2/23 and discussions on Phase 2 already ongoing, from the Q4CC :
Phase 2 will focus on the integration of B-TRAN dies into the power module as we collaborate with an innovative packaging company also selected by this automaker. We went through a considerable technology competition to be selected for the program and we'll need to continue to meet program milestones and performance expectations as the program progresses. What we've learned during the technology competition and our ongoing discussions with the automaker to date reinforce the competitive advantages we knew we could bring to electric vehicles.
Commercialization at scale isn't expected before 2025, but it's a huge market opportunity for the company, but these companies cross all their t's at every stage.
They will also have to cooperate with packaging companies (or in-house packaging from the OEM itself) for custom designs, the whole process will take considerable time with phases 2 and 3 all about the testing and certification of the module itself but milestone payments after successful completion of phases can be expected.
The cooperation with automotive OEMs has led to further success in the market as the company also announced a collaboration with a global Tier 1 automotive supplier. Their custom module development agreement with a global top 10 car producer apparently triggering the interest.
Other markets
Other markets (which we described in our earlier article ) are also significant and offer a faster route towards monetization, with customers in their test and evaluation program from the alternative energy and energy storage markets. And we should certainly not sniff at the opportunities here.
Renewables already is a $1B market for the competing IGBT based power switches and energy storage is growing rapidly. In Q3 the company will launch a second commercial product , an intelligent power module, targeting the alternative energy market, Q4CC:
which will build on the multi-die packaging design of SymCool and the bidirectional driver we designed for our customer technology evaluation program. This product will be an intelligent power module that will add a multi-die driver to the The SymCool power module design. This product will target renewables, particularly renewables such as solar and wind, coupled with energy storage, stand-alone energy storage and other industrial end markets
Then there is the SSCB (solid-state circuit breaker) market :
Starting with the solid-state circuit breaker market where the company has its first commercial product, the SymCool , out in January/23 (our emphasis):
The SymCool™ Power Module was designed specifically to enable SSCBs to deliver very low conduction losses. B-TRAN™-enabled SSCBs are expected to be smaller and more efficient than SSCBs using traditional semiconductor switches while operating orders of magnitude faster than conventional electromechanical breakers... We believe our SymCool™ Power Module is well-suited for the large, growing circuit breaker market, with the market projected to grow at a compound annual growth rate ( OTC:CAGR ) of over 6% to approximately $26 billion by 2027 . With clear advantages over electromechanical, IGBT and MOSFET-based breakers, we believe B-TRAN™ enabled SSCBs are ideal for a range of utility, military and industrial power control applications.
It expects sales to start trickling in H2/23 and sales ramp in 2024. The advantages of B-TRAN in SSCBs are discussed in the linked PR, but this is a huge market so any foothold they are able to carve out will quickly add to the company's financial prospects.
Commercial progress
Summed up nicely in a slide from the earnings deck:
One can appreciate that the company has quite a few customers in its test and evaluation program, although investors should keep in mind that this doesn't guarantee adoption.
The company has an ongoing project with the US Navy with partner DTI (the project helped with the development of their SSCB) for which devices were shipped to DTI in Q4, from the Q4CC
The objective of this program post demonstration is for DTI to introduce a family of circuit breakers, incorporating B-TRAN for sales to military, industrial and utility markets.
The company is engaged with two wafer partners for a diversified supply and has started a full process flow engineering run at one of these which will complete in Q2, so they've not passed qualification just yet and neither has the second wafer partner, but they are very experienced in manufacturing bipolar devices such as IGTBs.
They are also collaborating with their wafer partners to explore funding options under the CHIPS Act and the company is pursuing multiple additional government projects.
Finances
The company generates a little revenue in the form of grand revenue ($17K in Q4, $203K in FY22), while useful, what matters most at this stage is their cash burn:
Management expects FY23 cash burn to be $8M-$8.5M, so they're good well into 2024 given the $16.3M of cash left on the balance sheet (and no debt). There might be some milestone payments or money from the CHIPS Act.
Next year they are likely to produce at least some revenue from the two commercial products that will be on the market later this year, some of that could already trickle in H2/23.
The economics of that remains to be seen, things should start to improve when production scales, yields improve and there are learning economies, but start-up usually doesn't produce favorable economics.
Valuation
With 7.77M fully diluted shares out, 786K warrants and 443K options there are 79M shares outstanding, fully diluted. At $10 a share the company has a market cap of $79M. The company also has $40M+ in tax carry-forwards, which can become pretty useful over time.
Conclusion
B-TRAN power switches offer several important advantages (bi-directional switches, reduced switching, and conduction losses much-reduced parts and size, and improved thermal management requirements) and are protected by numerous patents.
These advantages are relevant for a number of large and fast-growing markets", the biggest of which are EVs, EV charging infrastructure.
There are more near-term opportunities in alternative energy, energy storage as well as smaller industrial segments, all significant markets in their own right and likely to offer opportunities before those in the EV market come to fruition.
B-TRAN silicon power switches are much cheaper than SiC power switches that can endure higher voltages but can be made with SiC wafers when the cost of the latter comes down.
The company's first product is a solid-state circuit breaker which is an order of magnitude faster than mechanical circuit breakers and sales are expected to start in H2/23. The market for these is very large.
A second commercial product is on the way later this year but won't ramp before 2024 either.
It isn't unreasonable to assume that they will convert at least a few of the big companies in their test and evaluation and development agreements to commercial sales at scale, but there are no guarantees and it's at least a year and a half out, more like 2.5+ years for the EV market.
The company has cash to last at least to the middle of next year and milestone payments and incoming revenue from two commercial products launched this year could stretch that further.
The $85M market cap is tiny in relation to the market opportunity, but there is no guarantee of mass adoption and the speed of traction could disappoint, which could force the company to arrange additional financing.
It's too early for earnings (out later this week) to produce much clues for the speed of adoption, but we'll be keen listeners to the ensuing CC.
So, while not without risk, we think that the balance of evidence point to good chances of market acceptance and given the size of the markets involved, the company only has to produce a little bit of traction to materially improve its financial prospects, which is the basis of our strong buy rating.
For further details see:
The Long-Term Perspective Of Ideal Power Is Bright But Speed Of Adoption Matters