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February 20, 2017 - 10:36 AM 2819 Reads 
Post# 25868935

It's been almost a year since my first EEStor Valuation, and there's been a lot of progress all across the board since then, so I think this is the right moment to publish a thorough valuation update.

At the time, I was very excited about EEStor claiming being price disruptive in $2.8B worth of the High Voltage Capacitor (HVC) markets, with the layers already built by their Cedar Park plant and third-party validated by Intertek Phase 3 tests (IT-3). I considered that to be the safe part of the business plan while the rest involved chasing the original EESU spec via EEStor High Polarity Advanced Polymer Program, a much higher risk / higher reward adventure.

Of course, it made sense being excited about the $2.8B market disruption prospect. EEStor was priced on the stock market at near-bankruptcy level. Yet it claimed, with supporting data to make its point, that it was price disruptive in a market worth $2.8B. They had shown with the help of Dennis Zogbi that their cost is at least 10 times less than that of the competition. That's in a price driven industry where the numerous incumbent competitors are making about 15% of net margins on their commodity products. So EEStor is in a position to sign Licensing Agreements where it crowns the Licensees in their respective sub-markets with the ability to lower the prices by 15%, eliminate the competition, thus growing their market share by at least a factor of 5 (the largest incumbent player market share is less than 20%), and still collect much higher margins, while paying EEStor a fat royalty.

There might be bidding wars, during the rounds of licensing negotiation with the biggest incumbents players for different target markets, that brings the royalty much higher, but the level I used back then and that I'll keep using here, is a royalty of 20%. That's a round number easily multiplied or divided to scale the result of this valuation, if the royalties end up being bigger or smaller.

The goal of this valuation is not to come with a cast in stone target price, neither for short term (1 year) nor long term (5 years), the goal is to get an order of magnitude of the markets at stake according to EEStor claims, and the economic value it will bring to its shareholders, if the capacitor manufacturing techno they own ends up being successfully delivered to the markets, and proves being as disruptive as EEStor claims.

The business model of EEStor is pretty simple: license its capacitor technology for as many sub markets verticals as possible. Thus it could be said that EEStor's real product is the manufacturing process it's about to start licensing.

It also dramatically simplifies the valuation of the company. As the burn rate of both the Cedar Park plant and the Toronto head office runs extremely low (currently C$300k per month), the royalties could be considered going almost directly to the bottom line. So one could obtain a very quick valuation by just cutting 40% of the royalties for depreciation and taxes to get the company earnings. Then I'll use a Price/Earning (P/E) ratio of 17.75 and the fully diluted count of ~213M shares. (That's ~152M of fully diluted Toronto EEStor Corp shares divided by 71.3% ownership in Cedar Park EEStor Inc.)

This result in the quick formula I'll use for the rest of this valuation:
Targeted market value in $B x 20% royalty x 60% for depreciation and taxes x 17.75 P/E / 0.213 B shares =
Market in $B x 10/ B shares =
Price per share of EEStor for the full market.
You only need to multiply the target market size by 10 to get the share price. That's for 100% of the market so a multiple of 1 can conveniently be used for each 10% slice of the target markets.

(Yeah I deliberately came up with a P/E of 17.75 P/E in order to get this easy conversion. Yet it's also arguably a really reasonable figure to use, considering how Mr Market usually prices businesses with such high profitability.)

For the original $2.8B market for instance, it would result in a stock price (SP) of $2.80 for each slice of 10% of that market taken over by EEStor licensees. So if you think at some point it will take 30% of the market, at that moment it will be worth a SP of $8.40. If you think it will end up with 60%, then when it reaches there it will be worth $16.80.

That price is of course easily scalable by whatever P/E you like other than 17.75, and whatever royalty rate you like other than 20%. Please yourself! :-) Once more, the goal is only to give you some order of magnitude.

====

The largest change to come forth since my first valuation is in EEStor's target markets itself. One year ago, the story was about a low-risk $2.8B HVC market and a bonus high-risk multi $T battery replacement market. Then came the November 2016 release of samples, tested by both Intertek (IT-4) and MRA (the testing shop used by most ceramic capacitor manufacturers), which was the first clear demonstration of EEStor outstanding Stacking Effect.

And with that Stacking Effect, EEStor filled the gap between $2.8B and multi $T for it to become a wide continuum of opportunities.

For instance in the  Stacking Effect White Paper it published and the later Q&A it provided, EEStor claims that "However, in relation to the demonstrated and certified 191 second time constant in our most recent 16-layer part, it can be noted that the Sandia report shows that $8.7 billion of that $23 billion-dollar grid storage market has a requirement to store energy for less than a minute. EEStor believes it can dominate these markets on performance and cost and EEStor further believes it can be competitive in the remainder of the $23 billion-dollar grid segment."

A couple of notes about these claims. First there's nowhere to be read that they could dominate these segment with 16-layer parts. In order to be dominant price and performance wise, they most probably plan to use much bigger than 0.75 round 16-layer stacks, even for those requiring discharge duration of one minute or less.

image: https://drive.google.com/file/d/0B6wTSZwAnQJ3WDNJR2NMVE1MSG8/view?usp=sharing

A quick calculation done over the Sandia report table above shows that the $8.7B (8.8 really) indeed come from adding up the Economy for the market where the discharge duration is 1 minute or less. And the $23B markets are those requiring a discharge duration one hour or less. Interestingly enough, when one adds up the total Economy of the above table the sum is $288.419B.

However in the EEStor Stacking Effect White Paper, you can read:

"The markets identified by Sandia labs, along with the results of EEStor’s Phase 4 testing, indicate there is potentially a total addressable market for EEStor’s current technology of over one trillion-dollars in the field of grid storage in the United States alone."

and

"As the stacking effect is explored further and stacks of 1000 or more are built, and/or the polymer research paths increase capacitance, other segments of the nearly US$2 trillion-dollar market could open up in a cost effective manner."

So, it appears the total markets would be worth "over 1 $T" and "nearly 2 $T", in the US alone. Considering the discrepancy, I wrote EEStor Corp CEO Ian Clifford:  "The EEStor White Paper and Q&A have used the right most column of the table from the Sandia Report, but the total of that column is $228B, not > 1 $T. Looking closely, the column is titled "Economy" and a quick check in the Sandia Report says: "Economy reflects the total value of the benefit given the maximum market potential. Based on potential (MW, 10 years) times average of low and high benefit ($/kW)."  Would EEStor use the potential economy as market size ?"

Ian answered:

"As to the Sandia report, we used the far right column market Economy to describe the market for EEStor as it was a very conservative and easy to understand the metric in dollars laid out with the time constants and expected installed capacity over the next ten years (from 2010).
This is the amount of money to be made in the market over the calculated cost of the various systems.  The actual cost for hardware to service that market is much much larger and the cost per megawatt of these systems are very much an educated guess (according to the Sandia report itself). The economic benefit number has a lot more data behind it even though it is still forecasting electricity pricing.  This way our numbers were extremely conservative and simpler to understand.
Estimating the potential capital investment market that is needed to access this market economy and EEStor cost compared to current systems costs would be a more accurate way of calculating the potential for sales of EEStor based systems.  Besides the fact we are keeping detailed pricing information proprietary (other than to say we are significantly cheaper), we thought the complexity of the calculation and the huge numbers that would come from such a calculation would detract from the thrust of the report."

Fair enough! It happens that my goal is also to only get a rough estimate of the underlying economic value of the markets at stake for EEStor. So here is what I suggest as a rough estimate.  Since the total of the Economy column in Sandia report gives about $288B and EEStor claim for a US grid market anywhere between "over a $T" and "nearly 2 $T", I propose we use 5x the above Sandia report table number as market estimates. Five times 288 is $1.44T, which fits in the limits of EEStor total estimates. Plus since that is supposed to be US only data, the worldwide (WW) numbers are easily going to make this 5x rough estimate really conservative.

So if we go back to the above EEStor claims, for the technology disclosed and third party test last November 2016, of being dominant in a further $8.8B market and competitive in the remaining $14.8B, if we use the rough 5x estimate as suggested above, we get a real conservative WW markets figure of ~ $44B where EEStor would be dominant, and a further $74B where it would be competitive.

If we apply the rough "x 1" valuation methodology suggested above (20% royalties, 17.75 P/E) it means each 10% of these market segments where EEStor believe it can dominate in performance and cost will be priced $44 / share once conquered and each 10% of the further segments where EEStor claims it is competitive will be priced $74 share once conquered.

Of course it's up to you to adjust the market shares you think a dominant and a competitive position could be worth. Yet, let's say in a few years EEStor licensees ends up conquering 40% market share for the former (dominant) markets and 10% of the later (competitive) markets.

This means EEStor share would then be priced 4 x $44 + 1 x $74 = $250.

That's for technology disclosed and third party tested today.

I don't know about you but that makes me eager to hear back from this round of Licensing Agreement negotiations in full swing since early February! :-D

In any way, the last November third party tests results opened up markets ($118B) more than an order of magnitude and a half larger than the previously claimed $2.8B.  It makes one wonders what could be achieved when EEStor starts delivering on the Advanced Polymer Program aimed at delivering capacitors with energy densities in the vicinity of the original EESU spec, that would dominate those of the current Li-ion batteries.


The Advanced Polymer Program


Anybody following EEStor closely knows from last September NR that "EEStor has commenced work on our previously announced polymer program to optimize energy storage characteristics of the technology". It's also common knowledge that there are three teams, one in-house and two from exterior labs, competing to provide the highest polarity/permittivity advanced polymer. In the last December NR announcing ASG being put under contract, Ian Clifford says: "Our work to date has been extremely effective and we look forward to certifying and publishing positive results of our collaboration as they become available."

So what is that Advanced Polymer Program anyway ?

The dielectric used by EEStor is a composite material made of CMBT powder mixed in a matrix of polymer. The CMBT (Composition Modified Barium Titanate) is really the wonder material that makes all the difference. It's a paraelectric ceramic powder made of Barium Titanate in its cubic form, way below its normal 120 degrees Celsius Curie point. The EEStor patents suggest the powder is then coated and mixed into a matrix of polymer. In all the Intertek third part tests performed up to now and aimed at the High Voltage Capacitor (HVC) markets, EEStor used an off the shelf polymer featuring the high resistance and breakdown voltage required by the HVC applications, but quite low polarity and thus permittivity, capacitance and energy density (all directly proportional).

The goal of the Advanced Polymer program is thus to replace the polymer used until now with one offering equal or superior resistance and breakdown voltage but dramatically higher polarity and permittivity (measured in order of magnitude).

 

That's it.

"Just" replace the polymer.

Of course the ultimate goal is to reach the original EESU spec 700 Wh/l energy density (ED) that EEStor could sell at $100/kWh. But between that and the current 0.026 Wh/l of the 16-layer sample tested last November there's a whole spectrum of ED incremental gains potentially being the key to fantastic further markets gain, especially in the grid.

Point in case, remember how the 191 second time constant reported last November was enough for EEStor to be dominant in the markets for which the Sandia report shown a discharge duration one minute or less, and competitive in markets with discharge duration one hour or less ?

Well the next discharge duration threshold that would unlock most of the market reported by Sandia report is 6 hours or less. 6 hours is only six times the previous one hour threshold where EEStor claims being already competitive, and only 360 times the 1 minute where it claims being dominant. So if the EEStor time constant assumption in order to unlock further markets really is linear, it means we only need real modest ED gains to unlock shares of very large markets. Let's give a closer look.

As explained in this study of EEStor Stacking Effect, we know that the time constant is directly proportional to polarity / permittivity / capacitance / ED increase. So if we get 6x or 360x ED increase, we also get 6x and 360x time constant increase. Well, these are pretty modest polarity / ED increases if you ask me.

We also know from the same above study that with a C/ED-boost factor of at least 1.16 for every doubling of layers in a EEStor stack, a 1024-layer stack would result in an ED increase of at least 1.16 power 6 = 2.44 (for 6 further layer doubling from 16 layers to 1024 layers). So it would result in a ED of at least 0.063 Wh/l, for stacking effect alone.
A further 6x and 360x increase in polarity/ED from an advanced polymer would give us an ED of 0.38 Wh/l and 22.8 Wh/l respectively. That's admittedly very far from the original EESU spec 700 Wh/l.

Yet if the time constant rule EEStor used to claim dominance and competitiveness of segment of the grid market scales, it would mean a 6x polarity ED increase to 0.38 Wh/l would be enough to be competitive and a 360x ED increase to 22.8 Wh/l, enough to be dominant in grid market segments Sandia report to be worth a total ~$200B in Economy. By applying the 5x rule detailed above, it would most probably mean a real market worth ~$1000B. And yes, if we use the same valuation metric as above it would mean every 10% of those markets that EEStor licensees grab would be priced $1000 / EEStor share on the stock market.

Yes that's insane. And yes that's what happen when you start playing with numbers involving $T markets. :-P

There's arguably some gotchas regarding the scaling used above. For the largest long discharge duration applications (6h), the main competitors are going to be cheap batteries, not expensive capacitors. Thus the price competitive metric might not scale linearly at all. EEStor will have to be competitive with grid installed storage system prices at about $200/kWh by the time they could hit mass production in 2019-20. It shouldn't come as a surprise then, that both Li-ion competitors and EEStor are well known to be aiming for the magical 100$/kWh sale price target for their basic storage component in the next coming years.

One crucial fact to consider, however, is that $100/kWh for Li-ion batteries is not the same at all than $100/kWh for EEStor capacitors. Indeed, Li-ion batteries are expected to have an operational lifetime of 1000 to 2500 charge-discharge cycles, say 5000 at best for the most expensive kinds. Whereas EEStor EESU being a capacitor is expected to offer zero degradation at a million cycles. That makes it anywhere between 200 to 1000 times cheaper than batteries over their operational lifetime. At $100/KWh of storage and 1M cycles, EEStor adds only 0.01¢ (one hundredth of a cent), to every kWh of energy that transit through it, compared to 2 to 10¢ for Li-ion batteries. This would have the most impact in the $T grid markets. And meanwhile EEStor could be 2 to 5 times higher priced than Li-ion and still be two order of magnitude cheaper on a charged kWh basis.

One should not underestimate the "performance" part of "EEStor believes it can dominate these markets on performance and cost" either. Being able to charge and discharge at electronic speed, being fully efficient over wild temperature range (just ask a Tesla owner how bad Li-ion batteries perform over short distance when it's not been heated to its optimal operating temperature), using neither hazardous nor highly inflammable material and boasting a lifetime tree orders of magnitude longer are features that could win EEstor market shares even at a price disadvantage. As Tesla CEO Elon Musk, who had done Ph.D. work at Stanford on high-energy capacitors before he helped get PayPal off the ground, himself once said:

"I am convinced that the long-term solution to our energy needs lies with capacitors. You can't beat them for power, and they kick asss on any chemical battery."

The other interesting part to remember about EEStor pricing is that it is inversely proportional to ED growth. So, providing the advanced polymer cost is in the rough patch of the one used in the four Intertek tests up to now, any 10x improvement in ED results in 10x reduction in $ per kWh, no matters whether such improvement comes from polarity, voltage break down, stacking effect or any combination of these. So the 6x to 360x increase in ED that I guessed are necessary to hit the bulk of Sandia report $T markets, will most certainly come with price decrease of the same 6x to 360x order. And most importantly, any further ED increments you get gives you the exact same decrements in price.

Of course, anything above 10Wh/l would most probably gives EEStor capacitors a 1000x cost advantage over all other capacitors above 100V. Expect a total wreckage of the HVC markets, and a quick resolution of the current High Voltage Capacitor Licensing Agreement round of negotiations shortly after any ED coming out.

Considering all the riches at stake in the low hanging fruit grid market alone, I will not even dare considering what would happen if EEStor hits high enough ED to be competitive in the sexy transport and mobile electronic markets, that were EEStor EESU original goal. Let's just say I cheerfully join EEStor CEO Ian Clifford in "looking forward to certifying and publishing positive results of our collaboration [with ASG] as they become available."

:-)

FD

"My top advice really for anyone who says they’ve got some breakthrough battery technologies, please send us a sample cell, okay, don’t send us PowerPoint. Just send us one cell that works with all appropriate caveats; that would be great. That sorts out the nonsense and the claims that aren’t actually true."
— Elon Musk, Nov. 5, 2014