Case Study
Turn Around Story: Will Enovix (ENVX) regain investors' confidence?
Enovix's advanced silicon-anode lithium-ion batteries
By Stan Vick

Turn Around Story: Will Enovix (ENVX) regain investors' confidence?

Summary:

  • In Q2 2022 Enovix’s (NASDAQ: ENVX) share soared over 32% on the news that it started commercializing its battery technology.
  • Later, the Company issued a disappointing Q3 2022 earnings report that sent the stock 20% lower as Enovix revealed that it recorded a revenue of $8K instead of the analysts estimated $0.4M.
  • In early January Investors filed a class action complaint to the Northern District Court of California alleging the Company and its Leaders misrepresented Enovix’s ability to produce batteries at a meaningful scale.
  • The company has changed key top managers over the past few weeks, including the appointment of a new CEO, Dr. Raj Talluri, who joined Enovix from Micron Technology (MU).
  • In 2023 Enovix already reported that it has manufactured and delivered unique sample cells for use in the Conformal Wearable Battery, the primary power source for U.S. Army soldiers.

About Enovix (ENVX)

Enovix integrates its development and manufacturing capabilities for Li-Ion batteries with silicon-based anodes to bring the finished product to the market.

For the successful continuing development of technologies like artificial intelligence, 5G, electric cars, augmented reality, and virtual reality, the levels of battery energy densities now available on the market are insufficient. The performance of batteries will be significantly improved by new silicon anodes, and Enovix Corp. is the industry leader in this regard.

The company can improve the most important battery output parameters by introducing its proprietary cell design. Such advanced batteries will be manufactured at Enovix’s new US plant. First, the new products will be supplied for use on the mobile market, with subsequent expansion into E vehicles and energy storage devices.

Promising Start of Commercialization

In Q2 2022 Enovix’s share soared over 32% on the news that it started commercializing its battery technology when for the first time the revenue from exporting the cells manufactured at the Fremont, California plant contributed to the company’s overall sales.

This led to the increase of the number of customers to 75 and also allowed to win the US Army contract for the special cells to be used for soldier’s vest electronic gear.

These positive developments increased Enovix’s attractiveness to investors. The company has huge market potential due to the nature of its product, but also significant risks inherent in investing in new technologies.

Positive Business Developments

Cooperation with a Global Market Leader
Enovix strengthened its prospects on November 1, 2022, when it signed a non-binding MoU with one of the global consumer electronics market leaders. This move assures new financial and engineering opportunities for Enovix in the industry.

Advancements in Laser Technology Program
Enovix is also working on improving the quality and output of its production processes. Recently signed Memorandum with IPG Photonics Corporation brings to the company an experienced partner in its R&D of cutting-edge laser technologies. The hiring of the Senior Staff Laser Engineer is another step in the same direction.

Enovix believed that these two advancements will help it in its attempts to boost production productivity, improve the performance of its goods, and facilitate the creation of new ones. The management believed that it had achieved a severalfold increase in laser throughput in high-volume manufacturing over the past 15 months by utilizing both industry enhancements in laser power and unique advancements in electrode processing processes.

Disappointing Q3 2022 Results

Then came the third quarter’s earnings report which disappointed many but made the current standing of the company clearer than before. The stock dipped by more than 20% as the company revealed that it recorded a revenue of $8K instead of the analysts estimated $0.4M. According to the business, most batteries supplied during the quarter were samples that didn't bring in money. And so, ENVX was down 53.50% YTD.

Buildout Delays

On January 5th, the company's Executive Chairman, T.J. Rodgers, revealed that Enovix is working on improvements for its first-generation production process, but at the same time, the company is also cranking up development efforts on its second generation of batteries. This means that Enovix is working on the second generation of its product while its first-generation production process is still unfinished. This makes the stock very risky as it raises uncertainty about the company's ability to produce both generations simultaneously and the need for further funding to get the second-generation production line going when it starts up in November. As a result of this, investors are concerned about the stock's long-term direction and Enovix shares dropped by 41%.

Investors Class Action Complaint

On January 6, 2023, investors filed a class action complaint against Enovix in the Northern District Court of California. The complaint alleges that the company and its leaders overstated Enovix's ability to produce batteries at a meaningful scale. The complaint also suggests that the company was aware of its continued manufacturing issues yet failed to disclose them to investors.

Turn Around begging of 2023

Raj Talluri as CEO
A major change in the Enovix board was seen just as the year was ending on 29th December. Dr. Raj Talluri has been named president and chief executive officer by Enovix, with effect from January 18, 2023. Also anticipated is Talluri's later appointment to the Enovix board of directors. Talluri succeeds CEO and Co-Founder Harrold Rust, who is stepping down from both roles and the board while continuing to provide advising support for the leadership transition.

Throughout his nearly 30-year career, Talluri has a proven track record of successfully managing high-volume, highly profitable semiconductor companies with an emphasis on the portable electronics industry.

Delivery to the U.S. Army
On January 6, 2023, Enovix announced the delivery, under its contract with the US Army, of sample cells to be used in the Conformal Wearable Battery designed by Inventus Power. This battery is a power source for soldiers’ communications and navigational gear, and with the use of Enovix’s cells that provides twice the capacity compared to the current model, the battery will last significantly longer. BrakeFlowTM technology will additionally increase battery safety for the Army.

This timely delivery showed the company’s ability to complete the sample-scale stage of its projects on schedule.

Recent Management Changes
On January 23, 2023, Enovix announced that Ashok Lahiri will leave the CTO position but will lead its technical advisory board.

Enovix also announced the appointment of Ralph Schmitt, Enovix’s current Senior Vice President of Sales and Business Development to the Chief Commercial Officer role. Before joining Enovix, he served as CEO of multiple semiconductor companies, including PLX Technology (acquired by Broadcom) and OCZ Technology (acquired by Toshiba).

Conclusion

At the present, Enovix (ENVX) is trading below Wall Street’s estimate of fair value ($16.47). It is trading below the fair value by more than 50%. The revenue is forecasted to grow by 62.53% per year. Whereas the earnings are forecasted to grow by an average of 20.8% per year for the next 3 years. Their most recent financial position suggests that they’ve enough cash for at least 1 year of operations. There are also several other fundamentals in favor of the stock and its future.

What makes it risky? Although the concept of three-dimensional structured lithium cells has been around for some time, additional development is needed to make them in large quantities. Considering this, the news that the company is under hot waters isn't altogether unexpected.

However, from the perspective of an investor, the state of the production process is unimportant. What is important is that the investors want the company to start generating significant revenue as a route to profitability. The market thinks that Enovix's achievement of this milestone was simply postponed, with possible share dilution upcoming.

The change in key leaders and new contracts are both proof of strong intentions and the first signs of getting the Company back on track.

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