Ilika PLC (AIM:IKA, OTCQX:ILIKF) is a British technology company that appears to be enjoying success whilst retaining plenty of runway to keep moving higher.
The London-listed company is creating significant shareholder value, powered by a pair of potentially transformational battery technologies.
One of the two is now at the cusp of a commercial and financial breakthrough.
The December opening of the Stereax solid-state battery manufacturing facility at Chandlers Ford, in Hampshire, saw the company begin to gear up for commercial scale operations in the second half of this year.
Stereax is a line of micro batteries designed to power medical devices and industrial wireless sensors (IIoT) for use in hostile environments.
Understanding the suite of applications that Stereax can be incorporated into quickly gets to the nub of the investment case for this side of Ilika’s investment proposition.
And, the quickest way to get there is to understand what solid state batteries are, and why this is an exciting technology to be investing in.
So what is solid state?
The clue is in the name, these batteries are solid.
They don’t contain liquid or polymer electrolytes to separate the battery’s cathode and anode materials, like more commonplace lithium-ion batteries do. Instead, they house a solid electrolyte barrier.
At the moment, due to their smaller scale of manufacture, solid state batteries are more expensive than the cheap mass-produced lithium-ion batteries (nearly 80% of which are made in China), but, they promise significant benefits that are particularly relevant to new and emerging technologies.
Solid state batteries provide higher energy density, which means more power can be stored in a smaller space. They are also safer and more stable, particularly across a broader temperature range, or if they are impacted.
Such properties lend themselves quite obviously to the sorts of applications that Stereax is targeting namely med-tech or devices designed for remote and hostile environments.
Stereax commercialisation
Stereax is Ilika’s most advanced product suite in terms of ‘market readiness’ and commerciality.
The company is expecting much of this year’s Stereax newsflow to revolve around partnerships and end-product development.
The idea is that with greater manufacturing capabilities at Chandlers Ford, the company can produce sufficient volumes of batteries so that existing and new partners can advance prototype and early-generation versions of their products.
While supporting this end-product development, Ilika will be generating revenues from sales into these partners.
In an ideal world one or more of those products catch substantial commercial traction and that will drive a further scale up in capacities.
It is the sort of model that should see plenty of newsflow and commentary and, ought to see Ilika make significant gross margins down the line through licensing of IP.
Goliath: A big opportunity
The other side of the business, Goliath, could (as its name suggests) be very big.
Let’s quickly revisit the benefits of solid state: high energy density, stable in a range of temperatures, safer if impacted.
All are distinct advantages when it comes to electric vehicles (EVs).
Moreover, the materials used in solid state make the batteries more easily recyclable compared to lithium-ion counterparts.
That’s a particularly big deal given that EVs are very much a technology for the era of ESG.
EV battery systems will need to achieve similar mileage to traditional petroleum fuelled cars – aka ‘internal combustion engine vehicles’ or ICEVs – however present-day battery technologies can’t compete with the energy density of petroleum, no matter how cool a Tesla may be.
EVs need more power capacity whilst also being smaller. Proponents of solid state believe it is the solution to this problem.
Not only are they denser, another key benefit is that they allow a dramatic reduction in a vehicle’s weight by shedding so called ‘parasitic weight’.
Basically, because the batteries operate better in a broader temperature range they don’t require such large cooling systems.
Car designers can instead fit more battery, so in turn greater range, into smaller vehicles.
The roadmap for Goliath
In July 2021, Ilika raised near £25mln from a mix of City institutions, venture capital funds, the company’s directors, along with retail investors via PrimaryBid and an associated Open Offer.
The proceeds are intended to be enough to support the development of Goliath, up to the point that Goliath is “manufacturing ready”. The company has set itself this target before the end of 2023.
Ilika earmarked around £5mln of the cash for a ten-fold increase to a ‘pre-pilot’ manufacturing line for Goliath batteries.
The company’s facility, in Romsey, is expected to reach 10 kilowatt hours per week, from 1kWh, by 2023.
Like Stereax, this is expected to be a venture that has close ties with customers.
The company expects to supply early-generation battery products to its customers for use in their R&D and product development, all the while Ilika continues to hone and develop the future generation battery products that, with all going to plan, will see a broader commercial launch in the coming years.
Potentially giant prize
Success in the EV market could scale to an opportunity that’s potentially multiples larger than what Stereax could grow to be, albeit also the EV market is a much more fiercely contested.
A look at American competitor Quantumscape shines some light on the scale of the upside case for Ilika and its investors.
The US-headquartered EV battery firm, like Ilika, is presently in the development and lab testing chapter in its commercialization story. Albeit it is valued many multiples above Ilika, with a premium valuation of some US$7bn.
Quantumscape is the posterchild of solid-state battery tech.
With a Silicon Valley area code and an investor register that includes Bill Gates, Volkswagen and a Qatari sovereign wealth, its perhaps easy to understand why it gets the spotlight.
Ilika’s product is called Goliath but valued today at around £250mln the AIM-quoted company would be seen as a David in comparison to Quantumscape.
But Ilika is not without its own big-name backers. Ilika’s has a broad partner base and projects underway with Honda, McLaren and Jaguar Land Rover.
What’s to come from Ilika?
Ilika remains under the radar, compared to Quantumscape, even if the British firm is regarded as a leader for solid state in Europe.
Meanwhile, the recent addition of an American stock quote on the OTCQX market is expected to help increase visibility stateside.
For investors, Ilika looks very much like one to watch in 2022.