There has been a lot of excitement among some investors over the past few years about the prospects for renewable energy. That had led many people to buy battery shares – which have not necessarily performed well. For example, the share price of British solid state battery maker Ilika (LSE: IKA) has tumbled 66% in the past year. Leading US rival QuantumScape is down 51% in the same period.
Evolving business opportunity
Yet while the share price action has been negative, the noise coming from the battery industry has been increasingly positive.
Consider Ilika as an example. It has leased a factory and installed a clean room for production of its flagship Stereax battery line. The company said in its final results this month that it expects to start shipping Stereax batteries early next year.
In other words, we may only be months away from commercial production of Stereax at scale after years of waiting. The company was touting Stereax by name as far back as 2016 and developing the technology even before that.
Meanwhile, Ilika is also making progress on its Goliath product line. It is in the process of designing the manufacturing process for these batteries. It anticipates the product reaching manufacturing readiness in 2023 and then the company wants to ramp up production to what it calls “mega-factory scale”.
Has anything changed?
On one hand, Ilika looks much the same as it used to. Revenues are small and the business consistently burns through cash.
But it seems finally to be on the cusp of moving up to commercial levels of production. That should be transformative for revenues and could lay the foundation for future profitability.
Meanwhile, solid state batteries are also seeing growing momentum on the demand side. The campaign group Transport & Environment released a report last week on new research that showed solid state batteries can reduce the carbon footprint of an electric vehicle by 24%. That is a large difference and I expect soaring demand for solid state batteries in coming years. Toyota plans to release its own solid state battery in 2025 and rival carmakers are planning vehicles powered by the technology.
Is now the moment to buy battery shares?
The size of the future opportunity for solid state batteries seems to be growing. Large scale commercialisation is also getting closer to reality. What might that mean for solid state battery shares?
For years producers have been in a development phase, with funds needed for research and development. Commercialisation will also bring costs, such as building production facilities and spending on sales efforts. But revenues should start to increase significantly. Hopefully, eventually, profits may follow.
For me, though, it is still not the perfect moment to buy battery shares. There is a lot left to prove about the business model, not least that it will be profitable. That applies to the industry overall and it certainly applies to specific battery companies in my view. Brand new technologies can produce winners, but also a lot of losers.
That is why I usually prefer to wait until a company proves its business model before investing. I think now is an exciting time for solid state battery companies. But I am not yet buying battery shares for my portfolio.