FREYR Battery: Is It Time To Buy The Energy Storage Ramp Story?

FREYR Battery (NYSE:FREY) has had a great 2023. Yes, the common shares are down by around 3% but this has come against interest rates being hiked to their highest level in over a decade and the March banking crisis. The stock market’s loss of love for zero-revenue companies in fledgling and somewhat speculative sectors has not extended to FREYR, whose name is taken from the Norse god for peace and sunshine. What’s the play here against the now $1.16 billion market cap Norwegian battery company? FREYR forms a cautious hold against plans to build and start ramping up what will eventually become 50 GWh of battery cell capacity by 2025. This would place the company as one of the largest battery cell suppliers in Europe and at the center of the continent’s move to decarbonize and diversify its energy supply in the wake of the 2022 energy crisis sparked by Russia’s invasion of Ukraine.

FREYR’s plans are ambitious. The company intends to double its annual battery cell capacity to 100 GWh by 2028 and ramp this up again to 200 GWh by 2030. These will cover battery cells for not only utility-scale battery storage for the fast-ramping rollout of wind and solar renewable energy but also passenger electric vehicles and eMobility, which includes electric buses, trucks, and marine vessels. This is a play on still early-stage sectors set to be highly defined by hypergrowth. However, the competition in the space is intense with lithium-ion battery capacity set to rise to 5,500 GWh by 2030. Most of this capacity is being built out in China. FREYR is set to account for 3.6% of global battery capacity by the end of the decade.

Fortress Balance Sheet Sets The Backdrop For Ramp

FREYR is staking its future on a semiSolid lithium-ion battery from 24M, an MIT spinout based in Cambridge, Massachusetts. SemiSolid electrodes don’t use a binder instead they mix the electrolyte with active materials to form a clay-like slurry. This slurry enables thick electrodes with less volume, mass, and cost while enabling a simpler manufacturing process. FREYR is still pre-revenue so the most important metrics to analyze at this point from its most recent earnings covering its fiscal 2023 first quarter are its cash and equivalents as well as quarterly cash burn.

Cash and equivalents came in at $392.5 million, down sequentially from $443.1 million in the fourth quarter. It was also down $130.7 million from $523.2 million in the year-ago period. Crucially, this liquidity position increases to $474.8 million when restricted cash is included. Further, FREYR has also been able to close on a $112 million grant from the European Union’s Innovation Fund to support the development of Giga Arctic, its first giga factory in Mo i Rana, Norway. Giga Arctic will have a 29 GWh nameplate capacity and has been in construction for more than a year now. It is set to be fully powered by hydroelectricity.

The EU Innovation Fund was kickstarted back in 2020 as a funding mechanism for the demonstration of innovative low-carbon technologies. FREYR would have gone through a competitive bidding process for a slice of what is set to be €10 billion to support market industrial solutions to decarbonize Europe and support its long-term transition to climate neutrality. It’s set to be aggregated by FREYR with local production subsidies set to be provided by the 2022 US Inflation Reduction Act.

Well Managed Cash Position Combined With Subsidies Set To Cap Overall Capital Needs

Capital expenditure came in at $64 million during the quarter with the company underway with constructing Giga Arctic. Free cash outflow for the quarter came in at around $76.6 million with cash outflow from operations of $12.5 million falling sequentially from $17 million in the fourth quarter. FREYR’s long-term bull case is being bolstered by the material level of government support being made available to ramp up the decarbonization story. Giga America is a planned cell production module in the US of roughly 34 GWh in its initial phase. It will be based on 24M’s SemiSolid production platform at an initial projected capital cost of $1.7 billion.

FREYR is set to begin operations in its Giga Arctic and Giga America factories by 2026 with Giga America also set to benefit from a huge $410 million incentive package from Georgia and a $35 KWh battery cell production tax credit from the IRA. Disciplined operational cost control against the broader capital expenditure requirements demanded by the company’s ramp is important here and G&A expenses at $30 million did rise by $6 million over its year-ago comp. For the full year, the company’s management stated during their first-quarter earnings call that they expect overhead costs to run at around $95 million for the full year 2023. FREYR is still very much in the wait-and-see mode from an investment perspective. The company has large plans, substantial liquidity, and strong government support, but the bulk of its commercial traction is from its start of production from Giga America in the summer of 2026. I’m not a buyer yet against this timeline.