Nomi Prins has been getting some very active promotion from Rogue Economics in recent months, and the last pitch for her Distortion Report is driving a lot of questions our way… so let’s dig in and get you some answers.

Distortion Report is pitched as a way to profit from the wildly distorted economy created by zero interest rates — Prins is a Federal Reserve critic, and that’s the big picture, that the Fed has flushed too much money into the system and distorted the economy, making the rich richer, and she’s going to help you join them with her investing ideas. Including, in some recent pitches, that the economy is being “distorted” by green energy pitches, which means that you can catch up by investing in some of the green story stocks that are benefitting from the government’s largesse in this area — last time we looked at a Nomi Prins piece, her target was EV charging stations and she teased ChargePoint (CHPT), and more recently it looks like she’s also been touting Lion Electric (LEV) as an EV play, probably by speculating on the warrants, though I didn’t end up writing a story about that one (so far, CHPT has held up reasonably well, up a few percent while the broader market is down about 10% over the past six months since we covered that teaser pitch… but LEV is continuing to plumb new lows).

This particular pitch is something new, but in the same general “green energy” world — it’s all about batteries, to jump to the point of the pitch, and about a different kind of battery design that she believes will have a massive financial impact on the company who’s selling it (and, of course, make you rich). But let’s not get too ahead of ourselves, here’s the intro to the spiel:

“‘You can follow the money… all the investors are smelling it.’ — CNBC commentator

“Why 5 Billionaires are Buying this $4 Stock

“Bill Gates, Jack Ma, Richard Branson, Michael Bloomberg, & Jeff Bezos are all backing a tiny $4 company… with the potential to ignite a $130 trillion new energy revolution.”

And as is so often the case, we have to rope Elon Musk into the story as well — Prins highlights that Musk’s Tesla and others are building massive gigafactories to churn out more lithium ion batteries, both for automobiles and for big energy storage projects, but that those billionaires are betting the solution to energy storage will lie elsewhere… and it has something to do with a little cup of liquid that Nomi Prins brandishes (and sips from). More from the ad:

“Billionaires Bill Gates, Jack Ma, Michael Bloomberg, Richard Branson, and Jeff Bezos are betting this liquid is the battery of the future….

“By backing a tiny $4 company behind this liquid.

“… this little-known company could dominate Tesla in this coming $130 trillion energy revolution… and deliver massive returns in the process.”

Prins makes a show of taking a sip of the liquid, which is apparently also carrying enough charge to light a little light bulb, and apparently she’s doing so just to demonstrate that the liquid, unlike the electrolyte in a lithium ion battery, is safe and non-toxic. More from Prins:

“As you can see, unlike what’s inside a Tesla battery, this liquid is completely non-toxic.

“There is no lithium. No cobalt. No nickel. None of the exotic battery materials that are toxic and extremely expensive.

“For example, lithium in Tesla batteries costs about $150 a pound.

“But this liquid costs just 5 cents a pound!

“… When you factor everything in, this liquid can store energy up to 94% cheaper than a Tesla lithium-ion battery.”

And, in a little dig at the Tesla battery fires that always get attention in the media…

“This liquid is so safe you could use it to extinguish a burning Tesla.”

So what’s this liquid, and how does it store energy? More from the pitch:

“I call it ‘Liquid Energy.’

“And this breakthrough is promising to change everything about battery technology.

“By the way, those aren’t my words.

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“The U.S. Department of Energy calls it a ‘breakthrough’ that’s a “totally new approach to battery technology.”

And the “competition” here, according to Nomi Prins, is Tesla and its growing interest in selling large grid-storage batteries, what they call the “Megapack” battery, which she describes as the bigger brother of Tesla’s better-known Powerwall home battery. Both are based on packs of lithium-ion batteries, the same cells that power a Tesla vehicle, and demand for all kinds of large scale energy storage is very high as companies and utilities try to build enough electricity storage to smooth out the uneven power generation of “green” sources like wind and solar.

But Prins says that this “Liquid Energy” is a much better energy storage solution than lithium ion batteries… at least for big installations and grid storage.

To be fair, she does include a little caveat…

“When I show you how “Liquid Energy” works, you’re going to have one of two reactions. You’re either going to…

“Shake your head and say “that’ll never work” and ignore this opportunity completely, or…

“You’re going to get so excited like I am that you’ll want to invest every penny you own.

“Please don’t do either.

“You should never bet the farm on any one investment. All investments carry risk. And past performance is no guarantee for results.”

But then she gets into her description of what this “Liquid Energy” actually is…

“… instead of a traditional CLOSED battery system like this lithium-ion battery that takes forever to recharge…

“The new OPEN battery system Liquid Energy can be recharged INSTANTLY….

“… when someone says a closed battery like this ‘dies’ what they are really saying is that there is no more charge inside the electrolyte fluid.

“So how do you bring it back to life?

“You plug it into a charger… and slowly but surely, electricity snakes its way through the ends… and gets stored inside the electrolyte fluid….

“But an OPEN battery like Liquid Energy can recharge immediately.

“That’s because, as the name implies, the battery is OPEN.

“The electrolyte – the fluid that holds charge – can be pumped in and out.

“When an OPEN battery dies, you simply open a valve in the battery … pump out the “dead” electrolyte… and pump in new, fully charged fluid.

“Boom.

“Instant recharge.

“It’s as easy as changing a battery.”

And she says that these “open” batteries are cheaper, recharge faster, and last longer…

“Open batteries run longer.

“10 hours at a time. More than double the 4-hour run time of a Megapack.

“And open batteries last longer. They can be cycled – which means to charge and discharge – 20,000 times. But you can only cycle a closed battery 2,000 times.”

Prins does also note that these “liquid energy” batteries are not replacements for lithium ion batteries in EVs, or in consumer electronics — they don’t discharge fast enough, and they are much heavier… but they’re perfect for grid storage, since it doesn’t matter that they’re heavy and they can just sit there and wait until they’re needed.

They also, we’re told, don’t require any of those expensive, rare or toxic metals — she says the “open” battery runs on just lead, water and her secret vial of liquid. So what’s the story?

Well, her demonstration of the viability of this battery design is pretty helpful in simplifying the way they work, but she just made up the “open” or “closed” bit — most people call these flow batteries, or sometimes redox flow batteries.

There are a bunch of flow battery designs and ideas out there, and quite a few startups and established companies who are either selling them, or developing them for future applications… so which one is she talking about?

Final clue…

“All you need is a 3-letter ticker you can buy through your normal brokerage account.

“And if you get in now, before this $130 trillion energy transition distorts the market even more, I believe the tiny company behind “Liquid Energy” could be the best recommendation I ever make.”

So what is it? Thinkolator sez this must be yet another battery company that came public during the SPAC craze in 2021, a firm called ESS Tech (with the clever ticker symbol GWH).

And yes, ESS makes long-duration grid storage flow batteries… and they did get early (indirect) investment from all those billionaires named, though that was back in 2019, when they were still looking for venture capital and hadn’t gone public yet. Here’s how they describe themselves:

“ESS Inc. designs, builds and deploys environmentally sustainable, low-cost, iron flow batteries for long-duration commercial and utility-scale energy storage applications requiring flexible energy capacity. The Energy Warehouse™ and Energy Center™ use earth-abundant iron, salt, and water for the electrolyte, resulting in an environmentally benign, long-life energy storage solution for the world’s renewable energy infrastructure. Established in 2011, ESS Inc. enables project developers, utilities, and commercial and industrial facility owners to make the transition to more flexible non-lithium-ion storage that is better suited for the grid and the environment.”

The financial statements will tell you that this is still very much a startup, they are a year or so behind their original commercialization timeline and just delivered their first batteries and recorded their very first bit of revenue last quarter, and it was only $686,000 (no missing commas). Expenses are also still ramping up as they try to build and sell these grid storage batteries, so their last quarter included $16 million in R&D costs and another $9 million or so in selling costs and overhead. The good news is that their SPAC merger brought in more than $200 million, so they do have some runway to use over the next couple of years as they try to get up to speed and build a viable commercial operation.

This deal was pretty typical of the SPAC craze — early in 2021, ESS agreed to merge with a SPAC called ACON S2, and it was going to end up bringing in more than $450 million in cash to fund the company’s development, valuing the whole operation at $1.1 billion. By the time the deal was ready for the shareholder vote and the closing, however, late in 2021, people were getting less interested in betting on these deals and more interested in the “sure thing” of getting their SPAC money back, so most of the SPAC shareholders pulled out and took their $10 and went home, leaving the company with (mostly) just the secondary PIPE equity raise that was part of the deal, and with roughly half as much cash as they had hoped.

You can see the original SPAC presentation here if you’d like some more background on the deal — just remember that it’s now about 18 months old, and it was probably too optimistic at the time (as were most SPACs… the incentives were all driving SPACs to make deals before the wheel stopped spinning, not to make well-priced or rational deals). Just about every SPAC made its valuation arguments using some multiple of their anticipated 2025 or 2026 revenue or earnings, and I’m sure lots of those newly public companies will fail to reach their five-year goals. After all, most of them, including ESS, were starting at damn near “zero” in 2021.

So ESS, in that initial presentation, did lots of math justifying a valuation at near $1 billion, based on attractively low multiples on forecasted 2025 revenue and earnings, mostly based on a product, their grid storage “Energy Center” modular battery, that they expected to begin “deploying” in 2023.

Their slightly-more-ready product, the Energy Warehouse, was supposed to be generating $2 million in revenue by 2021 and $37 million in 2022, laying the stage for the big release of the larger Energy Center in 2023 (Energy Warehouse is the containerized battery that might be used as a backup by a large company or a data center — in many ways, the big Energy Center installations would work like a bunch of those Energy Warehouses built together into one larger battery complex).

And yes, the battery itself is, well, pretty cool. You can see their explanation of the technology here… and they’ve gone so far as to essentially offer a warranty that guarantees the dependability, in the form of an insurance policy underwritten by Munich Re. I don’t know what the reality is of that guarantee, but it sounds impressive.

That was the plan, anyway — what’s the reality?

Well, due at least in part to supply chain challenges in getting components for their batteries and building their factory, the ramp up has been slower than anticipated. Sales in 2021 came in at zero. They did record their first revenue this quarter, roughly half of which came from sales to related parties, and they delivered the first Energy Warehouse products to customers in July and have continued to deliver more after the end of the last quarter, so they should be recording revenue every quarter from here on out, but they’re somewhere between a year and two years behind the trajectory envisioned by those original SPAC projections. Here’s how the CEO put it in the press release:

“While our operational initiatives to lower costs and increase capacity remain on track, we have encountered supply challenges with certain vendors that may impact our ability to deliver to our plan of 40 to 50 Energy Warehouses™ this year. With that said, our second semi-automated manufacturing line is now fully operational, adding another 250 MWh of annual production capacity. Additionally, the development of our customer success team is progressing well and we are already seeing incremental value in customer deployments.”

ESS says that they have one demonstration Energy Center installation being built in their home state of Oregon, in partnership with their local utility, they recently got another order for an Energy Center in Tampa, which they expect to fulfill next year, and they have at least dozens of Energy Warehouse orders to fulfill, with the primary constraint being their own manufacturing capacity (some of that might be helped, eventually, by their plan to work with a related party, ESI, to build manufacturing and service capacity in Australia, but it will take a while — and in the meantime, that related party also is the source of some of their initial Energy Warehouse orders).

There are a few analysts covering ESS now, and their expectations today are far short of the original SPAC forecasts — no surprise there, but the analysts now expect revenue of $3.5 million in 2022 and $109 million in 2023 (the original forecast was $37 million in 2022 and $300 million in 2023).

And those same analysts expect ESS to have an EBITDA loss of $88 million this year (after $60 million last year, and with an estimate of another $65 million loss next year). So even with the company talking about being more careful with costs, that’s a total loss of over $200 million in these first three “scale up” years of real operations. That’s not what the cash cost will be, I’m sure, depreciation isn’t going to cost them anything up front even if it’s a real cost that will hit eventually, and it’s likely that a lot of the compensation is share-based and therefore doesn’t burn cash… but that still means they’re in a challenging spot.

The original plan was for this three-year period to have total EBITDA losses of about $60 million, before profits kick in in a big way in 2024, and it seems likely that the losses will persist for longer and that profits will kick in later (assuming they do eventually kick in). They have $192 million left from the go-public SPAC transaction, so they could have enough capital to get through a couple more years at the current pace, even with costs rising, though I’m not sure how much they’re going to need to invest in expanding their manufacturing capacity.

My take? I’d guess that building up the business will be more expensive and will take longer than is currently expected — they do have some good relationships with potential major customers, and there is a lot of demand for energy storage, but there’s also a lot of competition among startups in this space, including a bunch of other “flow” battery companies (including Vanadium redox batteries, and flow batteries that use other chemistries).

I also find the experience of some of their competitors instructive, since companies have been overpromising about new grid storage solutions for years — the Eos (EOSE) Znyth battery, for example, is not a flow battery, but it otherwise comes with a similar “better than lithium ion” argument of longer life/lower costs/safer chemistry, and was in a similar spot to ESS when they went public a year earlier (also through a SPAC merger)… and also quickly fell behind its projections, largely because of the cost and challenge of building up capacity and fulfilling orders, so the stock has also disappointed. They’re finally ramping up revenue more meaningfully now, but investors haven’t found reason to care yet — perhaps partly because once you start selling a meaningful number of batteries, people start looking at the income statement, and it becomes more clear just how much money you’re losing on each battery you sell (for EOSE last quarter, the batteries they sold for $5.9 million cost them almost $37 million to make and deliver… sometimes the good news is pretty far in the future, especially for heavier industrial-type companies).

And there is still, of course, a lot of other work being done by labs and by projects within much larger companies on flow batteries and other grid storage ideas. Given the state of the world and the focus on maximizing green energy usage right now, I would guess that a lot of those projects will find customers, and there may well be room for ESS to do very well even if they don’t “win” every deal they dream of or meet their optimistic projections, but it’s still awfully early. There’s a lot of guessing.

If you’re interested in betting on the next few years at ESS but don’t want to plunk down $5 a share, there are also warrants available. As with most SPAC deals, the financing included a sweetener in the form of five-year warrants for those who put up the original capital, and those warrants are now publicly traded and started their five-year clock when the deal was consummated. So those warrants, which trade at the ticker GWH-WT or GWHws or something similar (every broker uses a different terminology with these kinds of warrants), give the warrantholder the right to buy GWH at $11.50 per share anytime between now and October 11, 2026.

That’s somewhat appealing, but GWH also has some unpleasant early redemption terms attached to those warrants, so if the share price trades above $10 for 20 days out of 30 they can force a cashless redemption (meaning you get the “fair value” of your warrants in the form of shares of ESS) — that’s worse than the usual early redemption clause that kicks in when the shares are above $18 for 20 days, and it means your leverage is pretty severely restricted. If the shares trade at $10 for a month at some point in, say, two years, then you’d have close to a 100% return from owning the stock (it’s about $5 today), but if you bought the warrant instead, and the company opted to do that early redemption (it’s entirely their choice, not yours), then the redemption could mean that your warrant gets swapped for about $1.70 worth of shares. The warrants are currently trading at about $0.75, so that would mean you’re not getting a ton of extra leverage from the warrants, only about a 125% return.

Since you’re taking a much larger risk of a 100% loss than you would as an equity holder, that’s not so terribly exciting… though yes, there are scenarios where the share price goes somewhere in that $15-20 range over the next few years and the warrant can provide substantially more leverage, particularly if the stock shoots higher very quickly and the company doesn’t opt to redeem the warrants immediately. That’s the daydream that might make the warrants appealing, and even if I think it’s improbable it’s clearly not impossible. It has happened before, as everyone who lived through the first wave of the SPAC mania can tell you — there’s no rule that says these stocks or their warrants have to trade rationally all the time.

Personally, I do think we’re going to see massive growth in grid-scale energy storage and smaller battery backup/load balancing installations. I don’t know which battery chemistry will win, or which company will have the most exciting order growth in this space, but flow batteries do make some logical sense for these big fixed installations.

Maybe ESS Tech will end up being a winner, but it’s probably going to take at least a few years to really get their revenue growth moving, wash out the hangover from the irrational expectations of the original SPAC merger, deliver a lot more installations, and prove their commercial viability… so investors today probably have to go in with a fair amount of patience. The SPAC merger juiced the business a bit by ramping up the funding, but this quote from Bill Gates about the goal of the Breakthrough Energy Fund, which is where that “five billionaires” funding came from just three years ago, in 2019, is instructive for those looking for disruption in green energy:

“Unlike a software startup, getting a new energy technology from a lab to market takes a lot of infrastructure, a lot of upfront capital, and a lot of time. We are willing to wait a longer time for returns than other funds.”

It looks like Breakthrough Energy Fund is still a shareholder of ESS Tech, though it’s not super clear from the SEC disclosures, I think because they own preferred shares instead of common equity. The biggest shareholder remains Softbank, which is probably also somewhat of a risk — they bought chunks of pretty much every interesting growth idea in the world over the past few years, and lost such a massive amount of money that they’ve been selling off some of those positions. No idea whether they’ll end up selling GWH shares, it wouldn’t have a huge impact on Softbank’s portfolio, but as of last quarter they still own 23% of the shares of GWH, so if they do sell it could have a meaningful impact on the share price of this little company (Softbank is in the process of selling down their Alibaba stake to raise something like $34 billion right now, and their GWH stake is only worth about $170 million today, so it’s almost a rounding error). Nobody else owns much more than 2% of the common stock.

Whether or not ESS Tech ends up growing into something meaninful, I’d say that it’s just as likely that GWH shares will drop 50% as that they will rise 50% in the next year or so — the potential clearly exists if they can hit their targets, but they’re also still really a startup, and they’re telling us to expect delays, and that means investors might have less reason to stick around and remain excited.

The shares are down sharply from their highs, as are most battery and grid storage story stocks who came public over the past couple years, but that doesn’t really matter right now — those two years of SPAC mania weren’t real, we’re not likely to return to that, so we have to start with a fresh perspective.

As of today, they’re not profitable, they’ve probably washed out a lot of their early speculators who were enthusiastic in 2021, and they need strong growth in orders and strong execution on the manufacturing side to get through this period and ramp up to commercial capacity and perhaps begin to break even… so what matters now is whether they can execute on actually building the business, announce exciting numbers or orders or other big news, and attract new investors who believe in the “next few years” story of reaching profitability. I can see some potential, but I’ll watch from the sidelines for now.

And you? Well, it’s your money, so you get to make the call — ready to bet on this particular energy storage name? Have other favorites you think are better? Let us know with a comment below.

P.S. Have you subscribed to Distortion Report? If so, please click here to visit our reviews page for that newsletter and let your fellow investors know what you think. This one’s pretty new still, and we don’t have a lot of feedback yet from our readers. Thank you!

Disclosure: I don’t own any of the companies mentioned above. I will not trade in any stock covered for at least three days after publication, per Stock Gumshoe’s trading rules.