Electrolyte Center And Auto Partnerships Will Expand Market Reach

Key Takeaways

• Strategic partnerships with industry leaders and expanded R&D activities aim to boost market penetration and accelerate technology adoption.
  
• Focus on high-margin electrolyte development and continuous manufacturing seeks to improve margins and capture solid-state battery market share.
  
• Slower EV adoption, uncertain DOE funding, and dependency on key partnerships pose financial and diversification risks impacting Solid Power’s future revenues and sustainability.

Catalysts

Develops solid-state battery technologies for the electric vehicles (EV) and other markets in the United States.

• Solid Power's increased electrolyte sampling activity and the opening of the Electrolyte Innovation Center are expected to boost future revenue by enhancing product offerings and improving customer acquisition.
  
• The expanded partnership with SK On and the collaboration with Tier 1 manufacturers like BMW and Ford are catalysts for revenue growth, leveraging alliances to increase market penetration and accelerate technology adoption.
  
• The $50 million U.S. DOE grant to support the installation of a continuous manufacturing process for sulfide-based solid electrolytes should enhance production capabilities and improve net margins due to reduced production costs.
  
• The capital-light business model focusing on electrolyte development rather than full cell manufacturing is likely to positively impact net margins and earnings by reducing capital expenditures and focusing on high-margin products.
  
• Plans to execute on a continuous manufacturing process and expanded sampling efforts aim to increase demand, which can elevate revenue by capturing a significant share of the growing solid-state battery market.

Solid Power Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Solid Power's revenue will grow by 37.1% annually over the next 3 years.
• Analysts are not forecasting that Solid Power will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Solid Power's profit margin will increase from -479.3% to the average US Auto Components industry of 4.5% in 3 years.
• If Solid Power's profit margin were to converge on the industry average, you could expect earnings to reach $2.3 million (and earnings per share of $0.01) by about May 2028, up from $-96.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 205.4x on those 2028 earnings, up from -2.1x today. This future PE is greater than the current PE for the US Auto Components industry at 14.9x.
• Analysts expect the number of shares outstanding to grow by 2.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.98%, as per the Simply Wall St company report.

Solid Power Future Earnings Per Share Growth

Risks

• The slower-than-expected EV sales and projections that commercial adoption of solid-state batteries may not occur until the late 2020s or early 2030s pose risks that could impact Solid Power's future revenues.
  
• The company's reliance on funding from the U.S. Department of Energy, which is currently uncertain due to a pause in disbursements, introduces financial risk that could affect cash flow and capital projects.
  
• Despite revenue growth to $20.1 million in 2024, Solid Power operates at a significant loss with an operating loss of $105.3 million and net loss of $96.5 million, which could pressure its financial sustainability.
  
• Solid Power's dependence on a few partnerships, such as with SK On, BMW, and Ford, as well as geopolitical risks involving Korea, may impact revenue diversification and earnings stability if any relationship falters.
  
• Potential tariffs on materials and equipment sourced globally could raise operational costs, impacting net margins and overall profitability.

Valuation

• The analysts have a consensus price target of $2.0 for Solid Power based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $3.0, and the most bearish reporting a price target of just $1.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $51.9 million, earnings will come to $2.3 million, and it would be trading on a PE ratio of 205.4x, assuming you use a discount rate of 7.0%.
• Given the current share price of $1.11, the analyst price target of $2.0 is 44.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.