Seeking Alpha • Dec 09
ESS Tech: Darling Of The Shorts Or Storage Panacea
Summary
ESS Tech is in the much needed grid scale battery storage business.
The company went public via a SPAC deal and the stock price has since melted down.
Despite many announcements with reputable large utility customers, and some shipments, it is now in the maw of short sellers focused on one foreign customer.
A loyal cadre of institutional investors continues to hold.
I believe the technology works but agree with the shorts that management's communication skills are very poor.
In 1883, Thomas Edison warned that chasing the perfect battery is a fool's journey: "a catchpenny, a sensation, a mechanism for swindling the public by stock companies," he wrote. Working on the latest, greatest battery brings out a man's "latent capacity for lying."
Wow! As an ESS (GWH) shareholder, and shareholder and director of a privately held consumer sized rechargeable battery company, Edison's century old words sting! I bought and quickly sold ESS stock in the teens, selling once I saw the S1 dealing with the lockup expiry. I have re-entered at $4, so have now been stung twice on a technology that works, I think. More on that later. I guess that's 3 stings in one paragraph.
So what's the current short seller battle?
Here's the recent report from Grizzly. And here's what I think is the company's too brief and too mushy denial.
This is not the first time short sellers have gone over this target. Here's an older report from Bonitas Research released on October 22, 2021
Grizzly's particular beef seems to be that the Australian partner of ESS has not fully broken ground and is not completely up and running. They have lots of nice satellite images of undisturbed land, ownership records, etc. To me this is not dispositive as a glaring lie on what the company has disclosed. Did I think the Australian company was farther along just glancing at the disclosures? Sure. Did I think they were at a point where they'd be pumping out batteries any day? Nope. Did I bother to go digging further on the future tense of this Australian enterprise in articles and disclosures? Nope. Was this Australian venture central to enticing me to invest twice? Nope.
Then, in a rather glaring bit of recycled copy and paste in a report preaching transparency, they lift the section from the Bonitas report, pictures and all, of prior ESS installs they say have failed. Only a slight tip of the hat to that author. If you are going to live in the glass house of urging transparency on your short sale targets you ought to be more transparent yourself. There didn't appear to be any attempt to verify the status of the previous projects outlined in the Bonitas report by, say, calling them. [Kind of like this author relying on a secondary source to hope his lead-in Edison quote is correct!]
Some Grizzly specifics
Despite their screaming denunciation of the Australia partnership as some fraud, the company's disclosure actually looks pretty spot on. Here's part of a November 2022 article:
Also during the quarter, ESS Inc cemented a deal for its batteries to be shipped and sold in Australia, before the technology is then licensed for manufacturing and sale locally. Partner Energy Storage Industries Asia-Pacific (ESI) will distribute and manufacture Energy Warehouse units for the Australia, New Zealand and Oceania markets.
Starting with delivery of 70 units this year and next, ESI, will then build its own iron flow battery factory in Queensland by 2024. [Author's emphasis added]
Based on that I wouldn't expect Grizzly's perusal of satellite images to show a completed facility. It ain't 2024 yet.
I was interested that Grizzly came down hard on early investor BASF:
The multinational chemical giant BASF is an ESS investor since 2017. Despite being an investor, BASF has yet to pay ESS any revenues for its product and decided to forego both Series-C rounds.
But I know from another venture investment that BASF with its German base is reeling from the cutoff of Russian gas. Pulling in their horns on ESS is not unique to this company, its across their entire portfolio. Here's the lead sentence in a recent BASF release:
FRANKFURT, Oct 12 (Reuters) - BASF (BASFn.DE) is to reduce annual costs by 500 million euros ($485 million) in Europe up to 2024, including job cuts, as the German chemicals group took a 740 million euro writedown linked to the Nord Stream 1 pipeline.
A main beef I have with the Grizzly report, and the prior Bolinas report, is the lack of primary research. Call the Queensland politicos pictured at the ground breaking of ESIAP and ask them about the situation. Call any of the prior installs of ESS batteries and ask them about their findings. File a FOIA request on the US Army Corps and tell us what comes back.