Our stance on public "upstart" battery companies has been consistently negative since the IPO of A123 Systems back in September of 2009. (!)
Batteries are a scale business - 80% of the global market is concentrated in a handful of companies. Any mainstream application requires a massive number of units at the lowest possible cost - making it nearly impossible for a new entrant to succeed.
Some niche markets provide a potential path to success for smaller companies. One example is Kraken Robotics $KRKNF, which has developed battery technologies that work deep underwater. It's a much harder problem to solve than one might expect. Demand for undersea applications has grown rapidly, so Kraken has been doing well. Enovix $ENVX has one of the best management teams in the space and grand ambitions to become a large-scale provider. If they can stick to some specific areas where they have an advantage (like devices), they may be successful. It's too soon to tell how that's going to turn out. Kraken sits in our core portfolio, and Enovix has not yet made the cut.
SES AI was another "next-gen" battery company focused on Li metal batteries. As Elon Musk pointed out years ago, innovating and developing new battery types and materials is very easy. Still, the harder problem is scaling them up into the millions of units needed to support commercial production.
A Sensible Pivot
Instead of the usual Q2 earnings report, Qichao Hu, the CEO of SES AI, published a letter detailing the "seismic shift" in the battery industry as he sees it. The letter is worth reading and is linked below.
His main realization is that their technology is valuable, and their AI investments can broadly impact battery innovation, manufacturing, and safety.
The result is a shift in focus to three main things:
- Continue to work with EV OEMs like Hyundai and GM to take Li metal to commercialization and employ a licensing business model.
- Productize internal AI solutions to address market needs across battery makers and technology types and turn them into a software/licensing business.
- Go after the UAM/Drone market, where Li metal batteries are especially desirable due to their size and weight advantages.
SES will now see its shareholder base shift as it morphs from a potential battery maker to an AI-based software and technology licensing business. However, SES still has a battery opportunity in some niche markets, like drones.
