Declining Battery Storage Costs And Lithium Competition Will Threaten Margins

Key Takeaways

• Rapid advances and falling costs in competing battery storage threaten demand, margins, and long-term revenue for Energy Vault's gravity-based systems.
  
• Dependence on large projects and persistent supply chain, permitting, and economic risks could cause delays, unpredictability, and lower-than-expected profitability.
  
• Shift to an own and operate model, strong project execution, and long-term agreements position the company for recurring, high-margin, and reliable future revenues.

Catalysts

Develops and deploys utility-scale energy storage solutions in United States, Australia, and internationally.

• While Energy Vault has secured a $300 million preferred equity investment and expanded its project pipeline, the rapid decline in battery storage costs and continuous performance improvements across the industry threaten to erode future demand for gravity-based systems, potentially forcing Energy Vault to compete at lower prices and driving down long-term revenue and margin expectations.
  
• Even with robust offtake agreements and a growing backlog, the company's pipeline relies heavily on large-scale project deployments that are vulnerable to global economic uncertainty and recessionary pressures; such conditions could delay or cancel projects, leading to unpredictable and lumpy revenue streams and impairing progress toward recurring earnings targets.
  
• Persistent difficulties in achieving true economies of scale-given the capital intensity, permitting delays, and complex supply chain challenges (notably for steel and concrete) for gravity-based storage projects-pose a significant risk that gross margins and EBITDA contributions from new assets will be lower than forecast, as cost overruns and construction delays remain likely.
  
• The intensifying competition from incumbent battery technology providers and a flood of new entrants leveraging cheaper, more flexible lithium-ion solutions is likely to erode Energy Vault's market share over time, undermining both its revenue growth trajectory and its ability to win new contracts at attractive prices.
  
• Any sustained regulatory or policy volatility-such as sudden changes in storage-related tax credits, sustainability standards, or permitting regulations-could significantly shrink the company's addressable market and invalidate current project economics, jeopardizing both backlog conversion and targeted recurring EBITDA, with ongoing earnings shortfalls likely as a result.

Energy Vault Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Energy Vault Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Energy Vault Holdings's revenue will grow by 118.9% annually over the next 3 years.
• The bearish analysts are not forecasting that Energy Vault Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Energy Vault Holdings's profit margin will increase from -279.4% to the average US Electrical industry of 10.2% in 3 years.
• If Energy Vault Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $55.2 million (and earnings per share of $0.28) by about August 2028, up from $-144.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 2.3x on those 2028 earnings, up from -1.7x today. This future PE is lower than the current PE for the US Electrical industry at 32.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.01%, as per the Simply Wall St company report.

Energy Vault Holdings Future Earnings Per Share Growth

Risks

• The company secured a $300 million preferred equity investment from a leading infrastructure fund, enabling over $1 billion in project CapEx and supporting the execution of 1.5 gigawatts of projects, which significantly de-risks the development pipeline and adds visibility to future revenue and EBITDA growth.
  
• Energy Vault's backlog increased 47% quarter over quarter to nearly $1 billion and is up 120% year-to-date, driven by new third-party project and long-term offtake agreements in key markets such as the US and Australia, indicating robust underlying demand and future revenue streams.
  
• The company is shifting to an own and operate business model with Asset Vault, which creates predictable, recurring, and highly profitable EBITDA streams, complemented by long-term service agreements that are anticipated to generate over $100 million in annual EBITDA within the next three to four years, directly supporting higher net margins and earnings reliability.
  
• Energy Vault's strong execution track record in project development, financing, and operations-including early delivery and 100% availability of recent projects-has enhanced its reputation and credibility with customers and investors, reducing risk around future cash flows and supporting potential upside to profitability.
  
• The secured long-duration offtake agreements, such as the 14-year contract with Stoney Creek Battery Energy Storage System, combined with a growing project pipeline of approximately $2.4 billion, create a foundation for stable, recurring high-margin revenues, directly improving future net income and shareholder value.

Valuation

• The assumed bearish price target for Energy Vault Holdings is $0.5, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Energy Vault Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $1.7, and the most bearish reporting a price target of just $0.5.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $542.1 million, earnings will come to $55.2 million, and it would be trading on a PE ratio of 2.3x, assuming you use a discount rate of 9.0%.
• Given the current share price of $1.48, the bearish analyst price target of $0.5 is 196.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.