Enovix - Early Days for this Innovative 3D Silicon Lithium-Ion Battery Architecture

Investment Analysis Clubs Saul’s Investing Discussions
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Enovix ticker ENVX

Having followed this board for several years, I am exceedingly grateful for Saul’s and everyone’s insights. Hopefully this post spurs interest in a company I believe has tremendous potential.
Enovix has designed a high-energy, high-capacity battery with a 100% silicon anode to power the technologies of the future.
The applications for their batteries are limitless: Wearables, IOT, Smartphones, Laptops, Tablets, Industrial and Medical, Electric Vehicles…

This is a “story stock” right now with the critical question hinging on whether one believes the company will be successful in ramping up production. They are not currently profitable.

A number of people on this board own Enphase and will be familiar with TJ Rodgers. TJ Rodgers was the founder of Cypress Semiconductors and served as CEO for 35 years. Five years ago, a struggling Enphase came perilously close to being kicked off the Nasdaq stock exchange. Investors TJ Rodgers and John Doerr intervened to install current leadership, who then executed one of the more stunning turnarounds in cleantech history.
TJ Rodgers is the Executive Chairman of Enovix and in my view is leading another incredible turnaround.

Below links do a better job than I can of explaining the technology and plan forward.

TJ Rodgers explains brake flow technology. T.J. Rodgers Explains Enovix BrakeFlow™ Technology - YouTube

TJ Rodgers cleaned house at the end of 2022 and brought in a new exec management team. They’re highly qualified and with years of relevant experience. The results have been promising. The candor that TJ Rodgers displays when he addresses the issues that plagued the company made me a believer. I highly recommend this video. Special Presentation by Enovix Executive Chairman T.J. Rodgers - YouTube

With the new team of CEO & President Dr. Raj Talluri and COO Ajay Marathe in place, they set benchmarks for the path forward and so far have achieved them.

Investor Presentation April 2023 https://ir.enovix.com/static-files/667425e2-44ef-4ab0-978b-991a2e6be186

From the April letter to shareholders:

First, we produced 12,500 full qual units, which beat our plan of 9,000 units, and was 2.8x over our 4,442 unit production last quarter. This progress was enabled by across the board improvements in yield and productivity in Fab 1.

Second, on March 9, we presented a rigorous Equipment Procurement Review Process Control Review to a special committee of manufacturing experts on our Board – and received permission to launch the fabrication of our 1,350 unit per hour Gen 2 Autoline design – six days ahead of our plan.

Third, we now have a Fab 2 building and over 25 employees in Penang, Malaysia, and are in the process of closing local funding for our first Gen 2 Autoline for Fab 2.

Fourth, although just after quarter end, we closed a $172.5 million convertible debenture to fund Gen 2 Autolines 2, 3 and 4 in our new Enovix Malaysia Fab 2 plant. The convertible debenture was well received and created minimal 7% dilution.

The Gen 2 Autoline will enable us to achieve an over 10x throughput improvement over the current Fremont Line 1, as detailed in a video featuring Gen 2 manufacturing steps narrated by our Chief Operating Officer, Ajay Marathe.

In March, we signed a non-binding Letter of Intent (LOI) with YBS
International Berhad (YBS) to locate our first Gen 2 Autoline in an existing
YBS building at the Penang Science Park in Malaysia. This second
manufacturing facility will allow us to scale production in proximity to
customer assembly, suppliers, and a deep pool of manufacturing talent.
Penang Island in Malaysia is the epicenter of assembly and test for the
semiconductor industry. In addition, the LOI calls for YBS to work with local
banks and government authorities to secure non-dilutive financing to fund
Gen 2 Line 1 and we are seeking at least $70 million.
At 200,000 square feet, the new Malaysian Fab 2 building has enough space
to accommodate four production lines that will be capable of manufacturing
between 38 million to 75 million batteries a year, depending on battery size
(one cell phone battery equals approximately two wearable batteries).

June 15th Enovix announced achievement of Quarterly Milestone Early, Producing 18,000 Cells with two weeks remaining in the quarter.

They recently announced a PO from the US Army https://ir.enovix.com/news-releases/news-release-details/enovix-receives-purchase-order-produce-battery-cells-us-army

78 customers are qualifying Enovix batteries for their products. Meta is believed to have an exclusive through 2024 with Enovix to produce their coming VR glasses.

There is significant short interest betting against this company. But insiders have been buying the stock.

Seeking Alpha article. Enovix Stock: Wins Army Contract, Game-Changing Milestone (NASDAQ:ENVX) | Seeking Alpha

Another Seeking Alpa article. Enovix: Big Disruptive Growth (Advanced Lithium-Ion Batteries) (NASDAQ:ENVX) | Seeking Alpha

Enovix will announce Q2 earnings on July 26th.

Thank you everyone. I look forward to your thoughts.

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Hi JT,

You neglected to mention that their total revenue last quarter was $21 THOUSAND dollars.

Their cost of revenue was $12 MILLION

Their operating loss was $63 MILLION

To put that in perspective, if they went beyond all dreams and multiplied their revenue by 100 times, they’d have $2 million in revenue, and wouldn’t even be close to covering their cost of revenue (which would be way larger than $12 million), not to mention their total operating cost which would be way WAY more than $63 million (with 100 times current revenue).

This doesn’t mean that this isn’t an interesting company with an interesting product, but those numbers are an important consideration if you are considering investing in it.

Saul

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Technology has a midlife event that defines its future called “Crossing the Chasm.” Lots of technologies die, some get across and prosper. If you guess right and invest early you can make a fortune but it’s a gamble best left to Angel Investors and Venture Capital.

Denny Schlesinger

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Many thanks for bringing this one up. I have been curious about ENVX and I did put it on a watch list.

However, I would like to see the product gain traction first. As is, it is a pre-revenue company at over 3B market cap. If it were a microcap, I would see a case for venture style investment as one among many, but at this market cap, it is twice as large as AEHR which has a product that is out and clearly gaining traction.

I do keep it on a watch list though and thanks again for posting here so that we can get multiple opinions.

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Thanks for the feedback Saul, Denny and MAS4R! I hesitated to bring the company to this board exactly because of the lack of revenues. Given the financials, $3 billion market cap does appear expensive. Approximately $1B of that came after the US Army PO press release when the stock went from $13 to $19.

The previous CFO is stepping away due to a tragic death in his family. June 29th they announced the new CFO Ahmad Farhan, who comes from Micron. July 10th he purchased 202,020 shares of ENVX at $19.80 per share. For the brand new CFO to buy on the open market like this seems to me an extremely bullish indicator. https://ir.enovix.com/static-files/2c4818ac-f4ff-421e-a88c-e0c335d92efd

I also own AEHR and was pleased to hear the giddiness in the CEO’s voice during Thursday’s conference call. I still don’t really understand their competitive advantage. The technology involved in so many of these companies is beyond my grasp.

I do, however, comprehend the market potential for Enovix and how a revolutionary battery would be a game changer. By all accounts Enovix batteries appear to work and perform as promised. The company’s issue is so far not being able to manufacture them at scale.

Dr. Raj Talluri has been president, CEO and a director since joining Enovix in January 2023. He brings a strong track record of leading successful high-volume and highly profitable semiconductor franchises with a specific focus on the portable electronics market over a nearly 30-year career at Micron, Qualcomm and Texas Instruments.

Ajay Marathe has served as COO since November 2022. His 38-years of experience includes executive positions at Western Digital Corporation, Lumileds LLC, Solaria Corporation and Advanced Micro Devices (AMD). For nearly 23 years, Ajay held positions at AMD including Thailand director of operations responsible for assembly and test of six million units per week, vice president of operations of the 2,500-employee computation products group, vice president of operations for assembly and test, and finally president of AMD India LLC, a startup created to serve the country.

This team is not intimidated by the volume expectations and knows how to produce millions of units per week. We’ll know next April if the Fab 2 line delivers what they’re targeting.

Blockquote

If you guess right and invest early you can make a fortune but it’s a gamble best left to Angel Investors and Venture Capital.

Blockquote

Investing shares a lot of similarities to gambling. My grandparents loved the horse races. My Grandma wouldn’t bet on the horse but on the jockeys she liked. And she always won. I’m confident in TJ Rodgers, Raj Talluri and Ajay Marathe and am betting they’ll be successful. Why should VC and Angel investors get all the outsized gains?

Thanks again! JT

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I have been following ENVX for a while. I also have a position in it. Similar to the OP, I am betting on TJ Rodgers but also on his management team. They are laying out target goals and then meeting each step along the way. As they are essentially pre-revenue that’s the only fundamentals we can monitor. The TAM for batteries is huge. My take on ENVX is that their Fab1 was to provided prototypes for small form electronic makers to experiment with. This has led to design wins and a large potential revenue funnel. Also Fab 1 has proven to be a test bed for more efficient production processes. Fab 1 has provided well over 100 “learnings” which are being incorporated into Fab2. Fab2 has the potential to provide 13xs the output of a Fab1 line. ENVX has built Fab2 to use as much existing battery technology as possible. This is done to make retrofitting existing battery production lines from other battery manufacturers as easy as possible. Fab2 will not produce enough batteries for even one large product line of a major manufacturer so licensing is key to their long term success. Samsung is one announced partner along with several un-named “mega” partners. From stock analystsFab2 is in itself a prototype for future battery fabs. IF ENVX proves to be the break through technology with over 100 issued patents and 100+ more pending, then my belief is that consumer product manufacturers will press their current suppliers to adapt ENVX technology. ENVX brakeflow technology is a key difference. We all have heard of lithium battery fires. ENVX is the only lithium battery to pass a “nail” test without fire. This is of utmost importance for a wearable.

So we have right now a protected technology. Demand is high, with ENVX stating manufacturers telling them they need ENVX battery density to roll out their next generation of consumer products. Out of all the batteries (thousands) ENVX has sampled their potential clients with, only 1 battery was rejected. The DOD Army contract was huge for ENVX. It’s of a size they will be able to fulfill and is a proof of execution test for ENVX. As was stated before the revenue funnel is large but I believe the potential clients want to see proof of execution before they commit. IMO the Army contract will be that test.

This is my most speculative holding and is sized appropriately to that status. It is definitely a “story” stock but as I have followed the company since the rejiggering of the C-suite; it has met every target they have set. This gives me confidence. I will continue to follow it closely and as sales ramp , I will add as appropriate.

A video of their Fab 2 line.

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A couple other minor comments: ENVX batteries can charge 80% in 5 minutes. One of the Mega companies working with ENVX appears to be Garmin. Toyota’s solid state battery recently announced MAY come to market in 2027, same with QS. ENVX should start Fab2 production by 2half 2024.

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In the video linked above, “Special Presentation by Enovix Executive Chairman…” Rodgers rips management for talking nonsensical corporate speak on Nov 3 ER which contributed to a massive stock drop, then vows, “No more scripts. No more lawyers. People in a room telling you what’s going on.” is pretty great. I’m new to Rodgers. But after watching some videos of him - man, this is an ultra elite leader with guts, brains, proven track record. He is a hyper-competitive veteran whose made billions. So it’s safe to say he is not in this to make thousands. Don’t own it but high on my watch list.

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Yes, TJ Rodgers is aligned with shareholders. He bought in the $8 range and most recently in March he was buying with both hands: 130,000 and 21,500 shares on 3/15, 34,899 shares 3/16 @10.96, 98,700 shares 3/20 69,551, 102,599 shares @11.57. Off the top of my head I believe his stake is about 14% of the company. If you had followed him in either time, it would have been very good for your financial health! Those stock buys were from my note at the time, so don’t hold me to them too closely. But I think you have the idea.

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Enovix Announces General Availability of Its Standard IoT and Wearable Cell This marks the move from pre-revenue to revenue. Another step forward.

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“man, this is an ultra elite leader”…

When I worked at Cypress Semi 20 years ago, his nickname was PT Rodgers,
Be careful here.

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Respectfully, this comment is directional, but not substantial. Please remedy with some sort of anecdote or data.

Good or bad, your comment needs more details.

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PT Barnum was known as the ultimate promoter.

TJ Rodgers has been a Silicon Valley icon for decades. There are more than a few in Silicon Valley who would scoff at the idea that he was or ever has been an “elite leader”. Most would concur that he is an elite promoter.

There are plenty of stories online, including how he left Cypress for those who want to investigate further.

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Thanks for the additional detail.

A promoter (cheerleader) is about direction and energy. If interest and mission are aligned, promoters are essential. (I’m not speaking directly about TJ, here).

So, the question is:

Do you believe he and his team are capable, aligned with the mission, goal oriented and personally invested in making Enovix a raging success?

The best sales people are personally motivated to achieve their goals. Keeping their goals aligned with the company and customer is the challenge.

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I consider him a great salesman, but not “an ultra elite leader”.

That may be what you are looking for. But on a board where “confirmation bias” is our enemy, I’m from the show-me side of the world. TJ is an asset at this stage and has his own money in this. He has chafed a lot of good talent in the past and I’d watch for that closely.

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Thank you MFChips for your insight. Something to consider for sure. I like the granularity of this C-Suite. They set out plain goals and so far have exceeded them. That’s verifiable. TJ has as you say, has his own money in the game (somewhere between a fifth and a quarter of a billion $). He has done this before (ENPH) . He has the education and experience to spot a viable technology, far in excess of what I can fathom. So the chance of ENVX being vaporware is unlikely. The design wins and DOD contract supports the same thing. The way he disposed of the prior leadership shows me he does not suffer what he sees as suboptimal execution gladly. One other anecdote for me was very telling. When ENVX was introducing the new CEO, one analyst present said to the new CEO: “You’re going to make a ton of money” . I have never heard an analyst say anything close to that. I haven’t bought a share on the basis of that quote, but I remember it. Trust but verify will be my mantra. Thanks for bringing your experience to the board.

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For glowing analyst commentary I suggest you read the 2Q21 earnings call transcript for UPST.

That’s not really here nor there with respect to ENVX, but analysts are even more impressed when a company actually makes a lot of money. Anyway, I’m a tad less skeptical of ENVX, I might take a micro position just to keep it on my radar (I have a watch list, but I seldom actually look at it).

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This is why Saul’s method is so great. He focuses on the numbers and the business performance, which are closest to absolute, objective Truth we can get. I’m a MidWesterner now and try to have some humbleness in my game. But I was raised in Brooklyn and my tendency as a Brooklynite for hyperbole is strong. I jumped the gun on that declaration about TJF. I was just really impressed with him in videos I watched - his toughness, conviction, seeming transparency, education in physics, chemistry, but I had not done enough research to make such a hyperbolic claim. My bad. That said I really admire the guy and the guts he’s shown, for example with his response to the organization of nuns who insisted he diversify his board. Agree or disagree with his take, the conviction he showed and heat he was willing to take are great qualities in a leader.

Bottom line here is the man believes that to make a fortune you need to go where people see no value, prove the value and profit off that explosive growth. He’s said that in several interviews. I think it’s undeniable he’s proven he’s legit. And if he sees something big in ENVX it’s a valuable data point.

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Earnings were just released this afternoon. I haven’t listened to the conference call, but the stock is up 9% After Hours, which actually isn’t much considering its inherent volatility.

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So yes, I did take a very tiny position just in order to keep it on my radar. This morning (after earnings report last night) the stock is up 14+%. In addition, E.F. Hutton started to follow the company with a $22 price target (currently at $22.33).

Does this mean I will now take a significant position? No way. This company has promise, but they don’t really have a product, yet. And Saul’s comment is very germane. Enovix will need unbelievable (I used that word intentionally) growth just to stop losing enormous sums of money.

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