Vox sector special: five companies bringing next-generation EV technology to market
As we discussed in our battery innovation sector special, global demand for lithium is expected to soar in the coming years. McKinsey projects 33% annual growth for the next 7 years, reaching 4,700 GHw in 2030. The vast majority of this new demand will be generated by hundreds of millions of new electric vehicles that will fill our roads in this decade and define the next major technological revolution. Just as the world transitioned from horse-drawn carriages to automobiles in less than 20 years at the beginning of the previous century, so too will our noisy petrol-fueled combustion engines be quickly replaced by silent battery-powered AC induction motors.
This transition is being fueled mostly by consumer preference, as EVs offer clear advantages over traditional internal combustion engine vehicles. EVs are cheaper to run, last longer, have many fewer moving parts, lower maintenance costs, better performance, and do not require regular trips to the petrol station. As batteries continue to get cheaper and charging infrastructure improves, petrol cars will be uncompetitive by the early 2030s in the developed world. Boston Consulting Group estimates that 59% of all light vehicles and vans sold globally in 2035 will be fully electric or hybrid electric.
Additionally, governments have stepped in with incentives and ambitious goals to accelerate the transition and avert the worst future effects of climate change. The UK, Germany, the Netherlands, Belgium, Greece, Norway, Sweden, Iceland, and Israel have all set government targets for phasing out sales of internal combustion passenger vehicles by 2025-2030, while China and the US have set their targets for 2035, and dozens of other countries are aiming for 2030-2040. Countries have also set economy-wide net zero goals, both the UK and the US' being 2050.
By now it should be clear that EVs are the next step in the evolution of transportation, that they are coming fast, and are here to stay. Of course investors have known this for years, evident in the meteoric rise of major stocks associated with EVs, mostly notably Tesla. However, there are many smaller players in the space that have stayed off the radar of most investors while effectively positioning themselves for future growth and success in the competitive EV sector.
We would like to bring your attention to 5 such small and mid-cap companies worth following for those interested in the EV sector:
Saietta
( ) is a UK-based multinational which designs, engineers, and manufactures complete electric powertrain solutions (eDrives) for use in light and heavy duty EVs, from scooters to buses. Saietta's electric motor technologies include the proprietary AFT (Axial Flux Technology) and RFT (Radial Flux Technology) which can be combined with its in-house power electronics, powertrain controls, mechanical axles, and transmissions.
Saietta stock is up 40% since March 2023 from deeply oversold levels, after the company announced it had received a £5m minimum order for 3,000 eDrives from existing US customer AYRO Inc.
AYRO, a NASDAQ-listed designer and manufacturer of electric last-mile urban delivery vehicles, plans to launch its new Vanish model later this year. Saietta will be its exclusive eDrive supplier, hoping to secure follow-on orders should the platform prove a success. The 3,000 units will be manufactured at Saietta’s Sunderland plant, with first deliveries earmarked for Q3 2023 and the final batch in Q4 2024.
The contract derisks Saietta's consensus forecasts, and represents its further expansion into the high-potential global eDrive market, anticipated to grow by 15% a year to US$165.6bn by 2027.
Earlier in March, Saietta announced that its Indian supply chain was on track to begin mass production of eDrives by September 2023, and hit delivery targets of 80,000 units over the next 5 years for one of the largest motor bike OEMs in India. £986k worth of purchase orders for the contract have already been received, with the remaining £2.2m balance scheduled for 2024.
The company also has a further 11 OEMs in the pipeline at various stages from request for quote through to final selection. All told, Saietta is now targeting a total addressable market of approx. 2m units by FY28. And with £11m of cash in the bank as of February 2023, Saietta should have sufficient capital to fund its growth until it becomes cashflow breakeven in FY25.
In terms of financial performance, Canaccord Genuity anticipates Saietta's revenues will jump from £4.3m last year to £6.0m, £12.1m and £36.0m over the next 3 years respectively. That would generate adjusted EBITDA and EPS of £12.0m and 7.5p by 2025, alongside a trough net cash position of £2m (from £11m cash in February 2023) and a 120p a share valuation.
Equipmake
Another notable mid-cap player specialising in electric drivetrain solutions is ( ). Since 1997, the UK-based company has developed and manufactured a range of electric drivetrain solutions for global automotive, aerospace, marine, construction, and bus markets. Equipmake offers a wide range of electrification products, from individual components to turnkey systems, including drivetrains, motors, inverters, power electronics, control systems, and HVAC.
Equipmake's shares are up 52% year-to-date and on track to meet market expectations for the current financial year, with an order book of £9.1m as of 6 February 2023 and growing. Equipmake's commercial and production contracts now represent 95.6% of total revenue, compared to 60.3% last year. This reflects rising commercial demand and associated shift of the company's revenue model from grant income to almost entirely commercial income.
Through last year's IPO and admission to AQSE, Equipmake raised £9m to scale operations and meet commercial demand, supplemented by a subsequent placing that raised £6.2m to support its growing pipeline that includes electric buses, supercars, fire trucks, and aerospace parts. To accommodate its order book, Equipmake is finalising a new lease on a 50,000 sq ft unit, primarily to facilitate production of its bus electrification business. The new lease will add significant capacity to Equipmake's primary Snetterton facility, enabling future growth.
Especially notable is Equipmake's recent success in electrifying existing bus and coach fleets through its "repower" offering. The company has already delivered the first of 12 EV retrofits to First Group with a second order from the bus operator to repower a double-decker from diesel, and is working on trials of an Equipmake-converted fully electric London Routemaster.
Repowering existing commercial vehicles is a cost-effective way of helping bus operators meet Net Zero targets. Equipmake estimates that a repower costs less than half the price of ordering a new electric bus or coach and can keep perfectly usable chassis on the road for longer as most coaches remain in service for 25 years or more.
Equipmake also recently scored a new deal with electric aerospace propulsion company H55, to supply electric motors for lightweight aircraft. Equipmake's motors will be used in H55's BRM Bristell B23 Energic, a two-seater designed for flight schools and pilot training. The deal was a significant endorsement of Equipmake’s expertise in developing lightweight and power-dense motors which address some of the challenges of electric flight. While the electric aviation market is at an early stage, it's expected to grow rapidly in the years ahead to reach $51bn by 2032.
Guident
A separate yet complimentary technology that is often discussed in the same context as EVs is autonomous driving. Guident, a ( ) portfolio company, is a pioneer in the rapidly growing field, having developed a proprietary "remote monitoring and control" (RMCC) system to improve the safety of autonomous vehicles, including land-based delivery devices.
Guident's RMCC technology features a cloud-based software solution that links operators to autonomous vehicle (AV) fleets. Guident's solution is AV agnostic and can interact with any vehicle's drive-by-wire system via a robot operating system or API. The remote control center consists of multiple operator stations equipped with full vehicle controls and high-resolution curved displays. Operators continuously monitor their assigned AV fleets in case they need to intervene in certain edge cases.
Automated supervision and safety driver roles will be critical for decades for all levels of vehicle automation before reaching full autonomy SAE level 5. RMCC-type technology is quickly becoming a legal requirement in multiple US states and other countries. All types of vehicles can benefit from the technology, including passenger road vehicles, agricultural equipment, mining equipment, and unmanned military vehicles.
According to Triton Market Research, the last-mile autonomous vehicle delivery market is expected to reach US$41.7 billion by 2028 with a CAGR of 19%. Contactless delivery has been in high demand since the Covid-19 pandemic, which Guident believes will accelerate the rollout of land-based delivery drones where its Remote Monitor and Control Center (RMCC) system can shine.
Separately, Guident continues to develop its patented Regenerative Shock Absorber (RSA) technology that converts more of an EV's motion into electrical energy, extending range. Regenerative braking is a well-known technology, however Guident's system harnesses energy from shock absorbers. "With precise force and displacement measurements, we aim to demonstrate the advantages of the modern energy-harvesting shock absorber over traditional oil-filled shock absorbers", the company has said.
Guident's RSA technology can make all types of vehicles more sustainable, including ICEs, hybrid, and EVs. It increases the energy harvesting efficiency by c. 70% over existing energy-harvesting shock absorbers, and can deliver extra EV range of 6-12 miles per charge.
In terms of milestones, in FY22 Guident signed on its first customer, the Jacksonville Transportation Authority, for its remote monitoring and control service. A second customer, the Boca Raton Innovation Campus, has signed a letter of intent. Guident also made significant progress in bringing to market its RSA tech, currently in testing with several Tier-1 companies.
Additionally, in February 2023 Guident partnered with Novelsat to provide space connectivity for autonomous vehicles under the Space Florida project. The partnership should give Guident a competitive advantage over systems that rely on terrestrial connectivity only by adding an always-on, low earth orbit monitoring solution for its remote monitoring and control centres.
Guident's valuation has increased steadily since 's initial investment in 1H 2018, reaching £20m in just 4 years:
Volex
( ) is a specialist manufacturer of performance-critical data and power assemblies for data centres, EVs, and consumer electricals. For EVs, Volex offers a comprehensive portfolio of charging products, from private AC home charging to public DC fast charging.
Volex's most recent full-year trading update for FY23 ended 2 April 2023 showed numbers ahead of market expectations, driving shares 17.2% higher on the day of the announcement. The shares have climbed a further 8.7% since then, and are up 248% in the past 5 years, chasing a September 2021 peak. Volex currently has a £436m market cap.
In the update, the company said it expected revenues of at least US$710m in FY23, representing a 15.5% year-on-year increase. Underlying operating profit was expected to rise 17.4% to US$66m, with both revenue and underlying profit ahead of market consensus. Operating margins were also expected to increase to 9.3% from 9.1% in FY22. Operating free cash flow in 2H23 was substantially higher half-on-half. After capital investment, dividend payments, and acquisitions of approx. US$46m in the year, pre-IFRS 16 net debt was expected to be approx. US$76m. This represented a reduction of US$22m since the half year.
Volex's revenue and profits growth reflected its continued aggressive commercial strategy. The company entered FY24 with strong momentum as it continued to target growth markets where EV, industrial technology, and medical sectors delivered strong organic revenue growth in FY23. It also made substantial investments in expanding its product portfolio, leading to a number of project wins with new and existing customers.
Post-period, Volex announced a US$30m contract with a North America-based manufacturer to supply EV power products from its manufacturing facility in Tijuana, Mexico. Production is anticipated to commence in calendar 2024. The contract win followed Volex's decision to double the capacity of its Tijuana site, which became its fourth facility involved in the manufacture of EV products.
With a robust balance sheet, healthy cashflow, and a growing pipeline of contracts, Volex is well-positioned to reach its 5-year goal of $1.2bn in revenues by FY27.
Ilika
( ) is a pioneer in solid state battery technology for industrial, IoT, medical, and EV applications. Solid state batteries are a next-generation technology that uses a solid electrolyte to materially improve on energy density, safety, performance, and reliability. In 2014, Ilika began work on its Stereax family of mm-scale solid state batteries for medical implants and industrial IoT devices. Then in 2018, the company started developing its larger format Goliath solid state batteries for electric vehicles, with a 3-stage scale-up plan from kWh-scale production to GWh-scale.
Ilika's growth has been financed by 3 rounds of venture capital, an IPO on the LSE in May 2010, and 3 placings in April 2012, July 2018, and March 2020. Ilika stock is up 79% this year as the company continued to report progress on bringing to market its disruptive thin-film battery technology. In April 2023, Ilika announced the first shipment of Stereax batteries from its manufacturing facility in the UK to Blink Energy, marking the start of a planned series of deliveries to customers in the coming months.
The company has so far secured 21 orders from 18 customers, of which 11 are for implanted medical devices, 3 for smart dental applications, 2 for smart lenses, 1 for aerospace, and 4 for other uses. Ilika's technology offers advantages over other solid-state battery approaches, such as higher energy density and temperature resilience, making them particularly useful for implanted medical devices and high-temperature industrial applications where current lithium-ion batteries are unsuitable. The global implantable medical device market is expected to grow at a CAGR of 6.6% to US$143bn by 2028, reflecting rising healthcare spending around the world and advances in technology.
While further from commercialisation, the larger format Goliath battery promises to bring Ilika's proven solid-state tech to EVs, which would represent a major value inflection point for the company. For this reason, we recommend investors interested in next-generation EV batteries Ilika as it begins its expansion into the EV space. Ilika has already begun collaborations with strategic partners such as the Faraday Battery Challenge collaboration program supported by BMW and Williams Advanced Engineering, to integrate high-silicon content electrodes into Goliath solid-state batteries, enabling automotive-level performance.
In its May 2023 trading update, Ilika said it was on track to meet expectations for FY23 ending April 30 2023. The company expected revenues to come in at c. £0.8m, compared to £0.5m last year, while the EBITDA loss (excluding share-based payments) was projected to be c. £7.0m, compared to a loss of £6.4m in FY22. Cash and cash equivalents at the end of the period amounted to £15.8m. Ilika also reported that product development on its large format Goliath battery for EVs and consumer appliances remained on schedule.
Ilika expects to announce audited full-year results for FY23 on 13 July 2023.
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