EV And Decarbonization Trends Will Drive Advanced Battery Demand

Key Takeaways

• Proprietary AI-driven technology and industry-leading battery data give SES AI a durable competitive edge, enabling innovative solutions and premium pricing across growing electrification markets.
  
• Integration of key acquisitions and disciplined execution position SES AI to aggressively expand market share and rapidly scale recurring, high-margin revenue streams.
  
• Delayed commercialization, high customer concentration, global macroeconomic pressures, supply chain risks, and intense competition threaten SES AI's revenue growth, margins, and long-term profitability.

Catalysts

Engages in the development and production of AI enhanced lithium metal and lithium ion rechargeable battery technologies for electric vehicles, urban air mobility, drones, robotics, battery energy storage systems, and other applications in the United States and the Asia Pacific region.

• Analyst consensus sees software and services from the Molecular Universe platform as a revenue driver, but the pace of enterprise adoption could dramatically accelerate once it demonstrably solves battery R&D problems beyond the reach of top human scientists, unlocking a rapid transition to industry-wide adoption and driving exponential revenue growth along with highly recurring, high-margin software income.
  
• Analysts broadly expect expanded addressable markets from AI-enhanced cell production in robotics and drones, yet SES AI's proven capacity far surpasses current demand and the rapid re-shoring of the global supply chain for these industries could enable revenue and market share that scales orders of magnitude faster than consensus anticipates.
  
• Integration of UZ Energy gives SES AI an immediate foothold in the fast-growing energy storage systems segment, enabling end-to-end solutions that combine proprietary AI-driven hardware and software, positioning the company for powerful cross-selling into the $300 billion grid storage market and opening a long-term, high-growth, recurring revenue stream.
  
• SES AI's uniquely comprehensive, high-quality battery data-unrivaled in the industry-creates a formidable moat, accelerating AI-driven material innovation cycles and reinforcing competitive advantages that can sustain premium pricing, increase operating leverage, and support industry-leading earnings growth as secular decarbonization and electrification drive demand.
  
• Strong, debt-free liquidity and disciplined operational execution provide SES AI with the means to aggressively pursue large-scale M&A and organic expansion in global EV, robotics, and energy storage markets, supporting sustained top-line growth and the ability to rapidly scale ahead of long-term market demand inflections.

SES AI Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on SES AI compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming SES AI's revenue will grow by 172.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -878.6% today to 13.5% in 3 years time.
• The bullish analysts expect earnings to reach $31.0 million (and earnings per share of $0.1) by about August 2028, up from $-99.8 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 bullish analyst cohort, the company would need to trade at a PE ratio of 32.5x on those 2028 earnings, up from -4.1x today. This future PE is greater than the current PE for the US Electrical industry at 30.6x.
• Analysts expect the number of shares outstanding to grow by 2.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.63%, as per the Simply Wall St company report.

SES AI Future Earnings Per Share Growth

Risks

• Extended commercialization and qualification timelines for SES AI's lithium-metal batteries, combined with their strategy of moving from trial testing to commercial contracts, could delay meaningful product revenue generation for years, resulting in prolonged cash burn and pressure on future earnings.
  
• Heavy reliance on a small number of automotive OEM partners for initial commercialization, as highlighted by a concentration of revenues and contracts, heightens the risk that losing or delaying a key customer would sharply impact expected revenue growth and near-to-midterm financial results.
  
• Rising global interest rates and inflation may increase SES AI's cost of capital, while also dampening electric vehicle adoption timelines, reducing demand visibility for its advanced battery technologies and lowering both revenue potential and earnings growth.
  
• Intensifying geopolitical fragmentation and supply chain realignment-particularly with Korea
• and Asia-based contract manufacturing-may cause production delays or increased logistics costs, negatively impacting operational efficiency and net margins.
  
• Accelerating industry-wide innovation and possible breakthroughs in alternative battery chemistries such as solid-state or sodium-ion, coupled with the risk of overcapacity and aggressive competition from incumbents, could erode SES AI's competitive edge, shrink its addressable market, and pressure average selling prices, thereby compressing gross margins and limiting profitability.

Valuation

• The assumed bullish price target for SES AI is $2.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of SES AI's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $2.0, and the most bearish reporting a price target of just $1.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $230.1 million, earnings will come to $31.0 million, and it would be trading on a PE ratio of 32.5x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of $1.13, the bullish analyst price target of $2.0 is 43.5% 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.