Eguana Skunks Tesla
Between 2014 and 2024 solar/wind power systems or Distributed Energy Storage Systems (DESS) are predicted to increase some sixty-fold from 200MW to greater than 12,000MW according to research firm Navigant. That would put the market for DESS at $16.5 billion. Elon Musk plans on cashing in on the demand for this new technology with his Powerwall 2.0 home battery to be produced in his $5 billion "Gigafactory” in Nevada spanning 135 acres for the building alone.
A tiny Canadian technology company based in Calgary has already skunked Tesla with an award winning battery/power converter that is more powerful, more portable and easier to install than the Tesla equivalent. The average home installation would need two of the Tesla Powerwall devices but Eguana Technologies (EGT-V) can provide the same storage capacity with one unit.
A DESS unit is composed of three different elements. You have a power source that can be solar, wind or even the grid itself during non-peak hours. You also have an inverter/power control unit that converts the input power for passing on either to the user or to a storage unit, some form of battery for later use. The power control unit also has to be able to pass higher voltage power back to the grid when necessary or desirable. The third part of the triangle is a battery or storage unit.
Ambrose Evans-Pritchard of The Telegraph just wrote an interesting article about the technology of batteries for DESS in the last week. In the piece he quotes another industry expert, the consulting group Mckinsey, as saying they estimate the total market as $90 billion by 2025.
Evans-Pritchard begins the article suggesting the next energy revolution is no more than five to ten years away. It will be led by battery technology as costs are decreasing far faster than either solar or wind power inputs. Batteries for storage are literally the missing link but costs are plummeting. Between 2011 and 2014, prices for storage dropped 50%. Elon Musk believes he can lower the cost of DESS to $100 per kWh by 2020 at which point solar becomes competitive with carbon based power generation.
Storage for energy is the missing link, the holy grail of renewable energy. Solar cells and wind turbines have been around for yonks even if hardly economic. But the wind doesn’t always blow and the sun doesn’t always shine. An affordable way to store excess energy for use when it is most needed or to pass back into the grid makes renewable energy possible. At some price it even will surpass the value of carbon-based energy with all its attendant problems. An inexpensive battery/storage system makes the entire concept viable.
Eguana Tech is a fifteen-year-old company that is brand new. The company spent those years and $30 million developing the technology for the power control units that sandwich between the solar panels and the battery storage units. They simply have the best inverters/power control units in the market being 4-12% more efficient than the competition in power conversion.
The company has installed units in over 5,000 storage systems. It is a 3rd generation platform with 35+ MW operational. They have a variety of patents protecting their technology with both a low cost and high performance advantage over other companies.
I said the company was fifteen-years old but is brand new. With the decreased costs of both solar cells and battery/storage units, a year ago the company made the decision to transition from design to market penetration intending to ride the wave of commercialization as lower costs drive demand higher by 45% per year.
Eguana has cash flow now with revenue trending at a $6 million per year run rate. With the 18 design wins over the past twelve months in the USA, Europe, Australia and Japan, it’s time to convert design into sales on a massive scale. By my figures, with their penetration in the California, Hawaii, Australian and German market, the company could achieve sales of $60 million per year in the next 18 months. Gross margins should be in the 25% to 35% range.
Automobile manufacturers are starting to enter the residential DESS marketplace with Daimler and Nissan indicating an interest and participation. In June of 2016 Eguana announced delivery to an unnamed German carmaker of their Power Control Solution (PCS) for integration in a European designed DESS.
Currently potential and actual customers are battery manufacturers, distributors of solar or wind power systems, and electric utilities. Eguana’s competitive advantage is in their software technology that optimizes storage performance and power conversion both in and out of the storage unit with a 4-12% advantage over other manufacturers.
The race is not to the swift nor the battle to the brave but that is the way to bet. What the market is going to reward now will be the ability to pivot on a dime. The DESS market is fluid but giant in potential. It will be as important for a company to be able to change direction as to have a technological advantage. Every jurisdiction has different legal and technical requirements. Eguana is targeting the most attractive and economically potential markets first without betting the farm on any particular market.
Elon Musk is bringing a lot of attention to both the automobile and the battery storage market with his $5 billion dollar investment in the future. In one way, he is actually doing the marketing and customer education for Eguana. With the size and penetration of the batteries from the Gigafactory into the market, Tesla will be naturally slower to pivot because of their mass. Eguana can modify products to fit changes in demand in a far shorter time frame. So they get the benefit of his marketing yet retain the flexibility of a small company.
In his speech at the Tesla annual meeting on May 31st 2016, Elon Musk said that the production of batteries could be a bigger business for Tesla than the manufacture of electric vehicles. Tesla believes their DESS business could grow from $160 million per year now to over a billion dollars in a couple of years.
For the next fifteen years, renewable energy is going to be “The Next Big Thing” as the decreasing cost of solar, wind power and battery storage solutions make renewable energy competitive with carbon based power generation. Eguana is perfectly positioned to ride that wave of economic opportunity. They have income now with experience in the market place and are aiming at a major push into serious revenue increases in the next year.
Eguana is just entering the most interesting and highest potential growth phase of what everyone believes will be an enormous market. Their ability to change and manage curvilinear growth will be the key to their success and potential down the road. I’ve talked to management at length about their plans and how they see themselves growing with the market. This is a management issue. The demand exists and will continue to expand. The only question is can Eguana expand with the market.
I believe they can and as a result I bought shares in the open market based on my belief they have both the technology and the management bandwidth to transition from a tiny Canadian junior to a major player in a big market.
Eguana shares were as low at $.08 in January before starting a climb to a high of $.39 a share in June. The share price has made a perfectly normal correction down to $.25 this month and has just broken out higher. I expect them to be making a new yearly high shortly. Eguana did a $7 million dollar private placement that closed in early July and is well cashed up for the next year and a half.
With Eguana you are buying blue sky. The company has a market cap of about $60 million Canadian. Based on their prior sales and projections for the future, that would seem perfectly reasonable. But I think investors have to take into account the growth rate of the industry and the potential for Eguana to execute.
Rather than look at a $60 million per year run rate, I think you have to think about a company doing $60 million a year but increasing at an annual growth rate of 45%. If you plug that into a spreadsheet, the numbers get big in a hurry. And the 45% is the average of all companies, not one that is a technical leader in their own niche. I really do believe Eguana has skunked Tesla.
Eguana is an advertiser and as such I am naturally biased. I own shares bought on the open market. Their website is a little too technical for my tastes but it will be easy to follow their financials which will reflect the success or lack of success of their business plan. Do your own due diligence.