This teaser ad from Paul Mampilly is a bit of a bait and switch, primarily teasing a specific company that you really can’t invest in directly, so that’s your warning up front… but we’ll dig through the ad and see what he’s talking about.
Here’s the beginning of the ad:
“The No. 1 Stock for America’s New Energy Revolution
“America’s getting a potential $51 trillion ‘Energy Upgrade’ … and one company at the forefront could:
“Keep an extra $4,400 in your pocket each year — without you making a single investment… And create more new millionaire investors over the next decade than any other industry.”
And here’s a bit from an email I got from Jeff Yastine introducing Mampilly’s ad:
“… one tiny pioneering American company.
“It holds 100 patents on a made-in-America device that is going to reset the entire power market.
“We go from paying utility bills every month…Are you getting our free Daily Update
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“To endless energy, on demand, 24/7. Energy that never runs out. Energy we can generate from home.
“All while slashing your monthly power bill by 70%, 80%, even 100%.
“That’s what this company’s device does.”
So that’s the big focus of this ad, this breakthrough technology that is going to change the world. What is it?
Yep, it’s another “next generation battery” teaser pitch. But this one is both about the general idea of distributed energy storage, and about a specific new technology that will make it explode nationwide because it’s more efficient. Which is a lot to put on one company, but that’s the magic of the teaser ad: They sell you on a fantastical trend which is real, like the advances in battery storage and battery technology being made by hundreds of companies, and then skip over the hard stuff and leave you with the feeling that there’s one company they’ve identified who will somehow “own” this trend and make you rich.
And as with every compelling teaser ad, there’s a “Number one stock” hiding in the hints. This is how Mampilly hints at it…
“My No. 1 Stock pick – the future of batteries: a company producing THE critical missing link that every battery needs to power cars and homes in the new age of energy storage.”
This is a tease for Mampilly’s entry level mass-market newsletter, Profits Unlimited (currently $47), so you can be pretty sure he’s not talking up a penny stock or something that’s difficult to trade. But what else do we learn about this secret stock?
Not much at first, so let’s get back to the “big picture” technology story — Mampilly builds this ad around the notion that the future of energy is cheap and renewable because of battery storage, and starts it out with the brand-name connection to Tesla (TSLA), which introduced the flashiest grid-scale storage system last year, called the Tesla Megapack, predicted to take the world of grid storage by storm… but, says Mampilly, that’s not the end of the story…
“… the experts are wrong!
“Because the Tesla Megapack is NOT the final energy solution we are looking for.
“As impressive as it is … the future of energy fits inside THIS box….
“the tiny device in this box right here, sitting on this table, can hold the same amount of power as the Megapack!
“Imagine a few of these powering a whole city just like a power plant … virtually free of charge.
“And not in some hypothetical future. It’s rolling out to manufacturers at this very moment…
“And here’s the thing…
“The technology behind this is NOT the lithium battery, solar panels or any clean energy you’ve ever heard of.
“Today, I’ll show you the secret inside this device … a technology so powerful that it’s protected by not 1, but 100 different patents.”
That includes some nice showmanship in the “presentation”, with the little toaster-oven sized box on a table being the focus — but that, of course, is balderdash. No, there is not a new super-battery being deployed this year that can store 3MWh of electricity in the space taken up by a coffee table book.
But, as always, there’s a kernel of truth underlying the tease. So what is that 100-patent company? More from the ad:
“… the company that owns ALL of these patents is creating the opportunity to profit as this market surges up to 20,300%.
“This company isn’t Tesla or any big company you’ve heard of.
“Rather, it’s a little-known California company … started by one of Tesla’s original employees.
“He’s known as ‘Employee No. 7.’
“You could call him the secret behind Tesla’s success … even one of the ‘fathers’ of the electric car revolution.
“Yet, few know his name or the new company he founded.
“But that’s all about to change.
“Because his company holds the KEY — the technology in this device — to unlocking a historic energy revolution.”
OK, so that “Employee No. 7” at Tesla was Gene Berdichevsky… and the company being teased is Sila Technologies. Sila is private, though, with almost $300 million in venture capital raised, and you can’t invest in it directly. So what’s the story here?
Here’s how the ad pitches it:
“You see, almost every battery runs on two things: lithium and graphene.
“That’s how it’s been for 40 years, and the battery has been stuck in the same place ever since.
“But this engineer has redefined the very chemistry of the battery for the first time, pushing the old lithium ion battery aside…
“And created a superbattery by incorporating this technology: this jar of black powder…”
The basic idea is that Berdichevsky’s company came up with a way to use more silicon in the battery anode, and that this can boost efficiency because silicon can handle much more energy density than graphite — the challenge has been that if you use too much silicon, the battery gets damaged by the expansion and contraction of the silicon molecules and won’t last as long. This is a well-known problem, and one battery technology companies have been trying to solve for a long time using a lot of different materials, including nanomaterials, but Sila Nanotechnologies has the specific solution that has excited Mampilly…
“This company created a microscopic shell — made out of silicon — that holds the atoms inside.
“Inside there’s a ton of room to expand and shrink…
“So once the lithium ions are absorbed, the particles expand within the shell casing — but not outside.
“And this leaves the outer layer of the battery’s electrode untouched … and undamaged.
“This means you get ALL of the power — with none of the changes in size that crack the battery.”
Their technology does sound very cool and impressive, but they’re also honest enough to acknowledge that big changes take a long time in the automotive space, which is where most of their attention has been focused — cars are products that carry human beings and have an extremely high standard for reliability and safety, and they often have 8-10 year warranties (and are expected to be safe and effective for longer than that), so auto manufacturers are not prone to move quickly or rashly when it comes to new materials or technologies in key parts of the car. Here’s a Berdichevsky quote to that effect from an article about Sila Nano’s funding round a year ago that got them to “unicorn” status with a billion-dollar valuation:
“The qualification time means there’s many years of work to make sure it is reliable for next 10 to 20 years. Our partnership [with Daimler] is geared towards mid-2020s production targets, but the qualification is something that takes quite a while.”
There’s also a good Wired article about Berdichevsy and Sila here if you’d like more background, and a good Quartz article here from last year about the general trends in battery development (also mentioning Sila and some other companies experimenting with Silicon and other battery materials).
And here’s one last bit of hype from the ad:
“They’ve tapped into the full power of silicon, creating the material that I believe will define the 21st-century battery.
And since they’ve filed no less than 100 patents on the technology…
They hold an undisputed monopoly on the battery catalyst that’s sparking an expected 20,300% market surge.”
Yeah, don’t hold your breath on that. I’m sure their technology is indeed impressive, and maybe it’s better than the many others that are being developed and tested, but there are more than 600 US patents that include the phrase “silicon anode” alone, let alone the thousands of other varying ideas researchers are developing to improve battery technology. (If you’re interested in reading up on a bunch of projects that are still venture funded, some of them pretty big, Aprius, Nexeon, Advano, StoreDot, Excellatron, NantEnergy, and Solid Power are a small sampling of the dozens I ran across just in reading up on the sector for a few hours this morning).
And this general idea about improving batteries through the use of more silicon is neither owned by one company, nor new. Here’s one more quote to illustrate that point, then I promise I’ll drop it…
“This is why the experts are calling it ‘black magic powder’ … ‘magic sand’ … and ‘magic dust that’s sparking an electric revolution on the roads.'”
That last quote about “magic dust” is from 2011, it’s from an article about Nexeon, another (also small and private) company in this space.
So yes, Sila Nanotechnologies is indeed hoping to roll out some supply for smaller batteries this year, using their silicon anode technology in things like mobile phones… and get into bigger stuff over the next five years. But no, it does not have a monopoly on the battery of the future…and regardless, it’s a private company and you can’t invest in it.
So what’s the story? What’s the investment Mampilly is hinting at?
“This technology is spreading at such a breakneck speed that it will go from powering a few homes last year…
To providing power to 50 million American homes nationwide … all beginning in the next few weeks.
This isn’t just happening in places like California….
It’s happening in Alabama, Utah, even Texas.
Red states, blue states, it doesn’t matter…
Because everyone is going to want virtually free energy on demand, electricity that never runs out.”
That’s a general reference just to “batteries” on a large scale, batteries at either the grid level or at individual customer sites that are being used, usually in conjunction with solar panels or other renewable sources, to store energy for future grid or homeowner use. Lithium ion batteries and battery backup systems have come down in cost even faster than solar panels in the past decade, so it’s becoming more and more rational to build your own solar utility — it’s almost certainly cost effective if you get subsidies from the government, but in many cases it works out pretty well even without subsidies now, though bigger is usually more efficient.
More from Mampilly…
“In the Coming Weeks, These Devices Will Begin Providing Power to 50 Million American Homes
“That’s not a prediction…
“It’s a direct order from the U.S. government.
“Federal Order 841, a mandate from the federal energy agency, is launching a historic rollout to help ensure the use of this device nationwide….
“Duke Energy, America’s second biggest power company, predicts this device “will blanket the U.S.”
“To comply with the federal order…
“Power companies are beginning to deploy this device everywhere, using it to replace typical power plants.
“FPL, Florida’s main power company, will be able to use it to provide power to 900,000 homes by 2021.
“PG&E, in California, aims to provide power to an estimated 2.3 million homes by 2020.”
So again, that’s not “this device” — it’s “these kinds of devices.” There’s no single provider who will supply all the batteries, or even one single battery technology that’s being used for grid storage, but yes, FERC’s Order 841 does mandate that the regional energy grids must better incorporate large-scale storage assets into the wholesale electricity market, essentially to make sure that the economics of the grid don’t unfairly prioritize generation over storage.
But again, while that is another push in favor of large energy storage projects, increasing grid storage and distributed battery storage was already a generic trend before that 2018 FERC order — and there are lots of companies involved in making batteries and energy storage systems, so what is Mampilly touting?
We know he thinks the Sila Nanotechnology breakthroughs are exciting, and I’ve found dozens of next-generation battery technology companies that are similarly venture-funded breakthroughs that are hoping to reach commercialization, but few of those kinds of companies are ready for commercial production or can really be invested in by ordinary folks who buy $47 newsletters. And probably shouldn’t be, since my impression is that investing in private companies tends to end disastrously for passive investors.
But there is apparently a stock pick hiding out there somewhere… from the ad:
“And I’ll tell you about a little-known company you can invest in today that I believe will ride this historic market surge to its height, creating untold wealth for early investors.”
And the clues are very thin…
“You can get started with less than $100 … but to have a chance at getting the biggest returns … you will want to buy in now before this federal mandate launches an epic rollout to 50 million homes.”
And we get a few clues about the companies who might capitalize on the specific technology from Sila Nanotechnologies… with the ad conjuring up an aerial view of what they think the next “gigacity” built for battery production might look like, perhaps in California, and saying…
“The company behind this gigacity has just made a strategic deal that gives them access to the nanopowder technology….”
That “gigacity” aerial photo they use in the teaser ad is from Fujian province, China, focused on the Contemporary Amperex Technology Ltd. (CATL) headquarters and manufacturing complex — that’s a Tesla supplier now, and is one of the major manufacturers of electric vehicle and larger storage batteries in the world (Wikipedia says they’re smaller only than Panasonic and BYD, the Wall Street Journal says they’re the largest manufacturer of EV batteries… I don’t know how you’d prefer to measure, but I’ll stipulate that they’re “really big”).
CATL is public, and is pretty big (market cap is near US$40 billion), though it’s not easy to trade since it’s listed in China (300750.SZ). It looks like it’s available at that ticker through the Hong Kong interchange with Shenzhen, but that’s not something small investors should dabble in lightly (I’ve invested in other Chinese companies through that interchange, using Interactive Brokers, but you have to stick to 100 share lots, there are restrictions, and there’s often not much liquidity).
And yes, the name Amperex Technology does come up as a backer of Sila, and has been talked about as one of their initial commercialization partners… though to say they “just made” a strategic deal is to stretch that a bit, Amperex made its strategic investment in Sila more than two years ago.
And, more importantly, that actually appears to be a different company than the one in Mampilly’s aerial photo — Amperex Technology (as opposed to “Contemporary Amperex Technology”) is based in Hong Kong, not mainland China, and it seems that the founder of CATL actually left the business years ago to start that similarly-named Chinese company, to take advantage of China’s fondness for pushing China-owned suppliers. The Amperex Technology that invested in Sila Nanotechnologies is much smaller, and has been owned by Japan’s TDK since 2005 (TTDKY is the US ADR).
So is Mampilly touting TDK? Maybe. Almost the entire ad focuses on that “black powder” nanotechnology and the appealing tech story of Sila Technologies, but perhaps he’s talking up one of Sila’s partners.
By the way, he does explain where the fanciful 20,000% number comes from…
“It’s the catalyst that will ignite all three industries…
1) Emerging technology.
2) Electric vehicles.
3) Green energy.
“And take them from a $250 billion niche right now…
“To a combined $51 trillion mega industry, if my research is right.
“That is a potential 20,300% market surge.”
So yes, the numbers are based on something real but it’s mostly just made up — imagining the size of the future industry, comparing that to the current market for batteries, and turning that into a massive percentage growth rate that will inspire you to daydream about buying the battery-sector equivalent of Amazon (AMZN) in 1999.
But, again, that specific nanotechnology is not specifically available for investment, and there are hundreds of other nanotechnology projects working similarly to improve battery life and efficiency. That doesn’t stop Mampilly from doing the ultimate “FOMO” littany (or, if you want to be more nuanced, the ultimate “survivorship bias” temptation) by implying that this one small innovation is going to lead to the next General Electric or the next Standard Oil…
“And just as Rockefeller’s refinery launched oil to the top of the energy market…
“Decades after the discovery of kerosene…
“And just as Edison’s filament made the light bulb the world’s No. 1 form of electric lighting…
“Decades after the light bulb was invented…
“This company’s nanopowder has the potential to make the battery THE power source for everything…”
And it’s not just GE and Standard Oil, of course, this could also be the next Intel… the next Applied Materials….
“What Intel Did to Microchips Is What This Company Is Doing to Batteries
This is also the case of the microchip, which was invented in 1959.
“But it didn’t gain traction until more than 30 years later, when Intel revolutionized technology with the invention of the MOS transistor, putting it in all devices we now use….
“And the best example may be Applied Materials — the world’s No. 1 equipment supplier to chip companies.
“It’s NOT a chip stock.
“It has the technology that, for the last three decades, accelerated chip adoption at an exponential rate.
“Before their innovation, chips were made for one computer at a time.
“This became slow and cumbersome, especially in the 1980s, when computers began taking off.
“What Applied Materials did was make mass production of microchips — with silicon — possible.
“And the good news is this company has had the biggest gains of all — surging by an extraordinary 77,000% since 1980.”
Which is all ridiculous when you’re talking about one relatively small materials technology company in a sector that is facing heavy investment by hundreds of large corporations and thousands of lab startups.
But then, finally, we get to a little bit more teasing about the specific stocks he’s recommending.
“Today, you can invest in the top companies I’ve identified … those few I believe will be the biggest beneficiaries of the $51 trillion windfall in endless energy, starting with less than $100.
“I believe the potential of getting in on these three companies now is like getting in on Standard Oil, General Electric and Intel before their meteoric rises
“And I’m predicting that those who get in now, using history as a guide, could see every $350 they invest turn into $1 million over time.”
So that’s one reference to “three companies” … and earlier in the ad he includes this reference:
“This technology is protected by 100 different patents … giving this ex-Tesla employee, and his little-known company, the KEY to unleashing it all.
“And it’s partnered with several companies that are employing this technology in their devices, giving us the chance to ride a potential 20,300% market surge from the ground floor.
“All told, Bloomberg projects battery power to ‘double six times’ by 2030.”
So I guess if those partnerships are “giving us the chance” to ride that market surge, then he must be referring to investing in the partners. Or, frankly, just investing in the idea of energy storage, since these newsletter dudes just love to pitch a broad idea and then skip right over all the complicated details to give us the impression that sure, “one tiny company owns the future!”
I know that Mampilly has been a fan of Tesla in the past, so perhaps we can assume that’s one of the picks he likes for this “three pack,” even if it doesn’t yet have any connection specifically to Sila Nanotechnologies (other than the fact that Sila’s founder was an early Tesla employee — as of last year, at least, Tesla was not a customer and they were primarily working with Daimler and BMW)… but he also talks that up in the ad, and certainly Tesla is not a company you can invest in with less than $100… so what of the “secret” ones?
If you’re talking Sila Nanotechnologies and insist on investing in that company, the only really viable way to do that is by buying shares of the companies that have invested in them and partnered with them… the only publicly traded ones of consequence that I’ve identified are German automakers Daimler (DDAIF or DMLRY) and BMW (BMWYY) and the Japanese electrical/magnetic conglomerate TDK (TTDKY). Daimler is their biggest partner and their biggest investor… but even if Daimler had put up all the cash in the investing round they led last year that’s still only a $170 million investment.
Sure, $170 million sounds like quite a bit of money… but Daimler, owner of Mercedes and Freightliner and a bunch of other brands, had revenue of $193 billion (with a B) and net income of $2.7 billion last year. That investment in Sila amounted to Daimler investing 6% of its annual profit… or put another way, that investment was roughly half of one percent of the cash and short-term investments that Daimler typically has on hand on any given day. And that’s just one of the many investments that Daimler (and pretty much all car companies) have made in new technologies over the past decade.
So yes, I’m sure the investment was a considered decision, and Daimler does see the potential in Sila, but it’s not going to make a difference to Daimler’s income statement anytime soon… and that’s going to be a really ugly income statement for the next couple quarters, since car buying has essentially stopped around the world due to the coronavirus. It won’t stop forever, and Daimler will weather the storm just fine, I’m sure, and might be a compelling bargain if you see the auto business recovering strongly next year, but things are far from pleasant or certain right now. Daimler has suspended their production in Europe, postponed their shareholders meeting, and signed on for a new 12 billion euro loan facility to give them some flexibility. I’d wager that nobody at Daimler is thinking overly much about this battery revolution today, they’re thinking about how to get back to building and selling cars and trucks again.
BMW is not as direct a partner, they have reportedly been working with Sila Nanotechnologies on battery development for a couple years, but if they participated in actual funding rounds for Sila the participation was not publicly disclosed or wasn’t as big as Daimler’s.
TDK (TTDKY) is a far smaller company, based in Japan and not very focused on US investors, and I remember it as the leader in magnetic recording — they used to make the lion’s share of the world’s cassette recorders, but they’ve expanded their expertise to deal with magnetic sensors, electrical components (especially for autos, though in lots of other industries as well), and, importantly, rechargeable batteries. Energy products, mostly batteries, make up close to half of their revenue, and that’s also the fastest-growing part of the business.
TDK is pretty solidly profitable, but hasn’t really excited anybody for years. They pay a small dividend, and had a record year of profits in 2019 (partly because of that battery business), but I imagine expectations for this year will be falling. On a trailing basis, they’re right now at about a trailing PE of 12, with a 2% dividend and no real expectation of revenue growth this year or next. They probably won’t report until mid-May, and I haven’t seen any recent updates about how COVID-19 might be impacting their business. Not a terrible idea, and certainly exposed to the growing demand for electrical components and batteries and power management systems, but they’re not going to make you 20,000% gains anytime soon.
Another very minor investor, from the early round where Amperex put up some money, was the big German industrial conglomerate Siemens (SIEGY, SWAMF), but they’re huge and batteries and associated power systems make up a very small part of their overall business.
So if we’re throwing out another guess for the “batteries” beyond Daimler, TDK and Tesla, particularly with a mind to profiting from large grid storage projects, I’d toss Eaton (ETN) on the pile as an interesting stock in this sector that doesn’t (as far as I know) have any direct connection with Sila Nanotechnologies. Eaton is an industrial conglomerate born before World War One, started with an idea for a new truck axle, and they now make everything from modular office furniture to golf grips, but they are focused on their large power management business — 95% of their sales are from their electrical and aerospace divisions, and they’re really trying to brand themselves as a power management and storage company.
Eaton is not a burner of a company, for sure, but it has been a steady grower over time and it is becoming much more focused on the key trends that Mampilly pitches in the ad, working on systems and products that enable the electrification of energy and mobility, which means electric vehicle systems, grid storage, electricity transmission, and so many related and supporting systems.
Before the COVID-19 crisis, they were expecting sales to be pretty much flat for 2020… though the aerospace division and their automotive sector sales are almost certain to see collapsing sales this year with production shut down at major plane and auto manufacturers (and demand destroyed for their end products). Their longer term goal is to deliver 8-10% growth in annual earnings per share off of a sales growth pace of 2-3%, generating $3 billion in annual free cash flow, and I assume they’ll continue to be active managers, buying new businesses and jettisoning less profitable ones as they’ve been doing for decades.
So that means they’re trading at about 11X expected free cash flow, which is pretty reasonable for a low-growth company, though that $3 billion in free cash flow is aspirational and is not likely to be available this year. They do pay a high dividend and have not yet canceled it for 2020, so the current yield is just under 4% — that dividend was about 50% of their adjusted earnings for 2019, so it’s sustainable but it would not be at all surprising for them to cut or suspend the dividend to keep a cash cushion during uncertain times. Even if they don’t necessarily need to, they won’t be blamed too harshly for doing that at a time when everyone else is also cutting payouts.
Analysts have brought earnings forecasts down sharply for Eaton, as you might expect, so the 2020 earnings are now expected to be not much above $4 a share, with revenues falling by about 20% (some of that is from divestitures, but much is from lowered expectations for coronavirus). That could change again, of course, and it wouldn’t be surprising to see both those numbers fall further after they report their next quarter… but they earned $5.67 in adjusted EPS in 2019 so there has been a meaningful downgrade already.
Still, the stock persists in trading with some optimism that the year will not be completely lost, and that the bounce back will be fairly strong to “re-normalize” the business in 2021 and 2022. We’re all guessing at what the world looks like then, of course, but for now analysts see about $5 in earnings in 2021 and $5.82 in 2022, which means that on a PE basis we’re looking at about 20X current year earnings, which investors clearly hope is the trough, and about 16X forward earnings. Not bargain basement valuations, but cheaper than Eaton has typically been in recent years.
There’s been some enthusiasm on good days, particularly when Boeing announced that they’re re-starting production last week, but whatever they say about their orders and the cash flow situation next week on their first quarter earnings call (April 30) will help crystallize near-term sentiment among investors. They do carry some debt, but they can cover their interest for a year or two even if they lose money this year, and from a quick glance at their financials it looks to me like they shouldn’t be in a meaningful cash crunch — I don’t know when their debt maturities are, but they own a lot of assets and have a steady enough business that they should have plenty of levers to pull if things get uglier (though they probably wish they hadn’t done a few billion dollars worth of stock buybacks in the past few years). If you’d like to get an idea of where they stood six weeks ago, before the world was in full panic, you can see their Annual Investor Conference presentations from March 2 here.
So that’s what I see coming out of this Mampilly tease… a pitch for a hot new technology that is not particularly unique and not directly investable, but if you believe strongly in that silicon anode tech from Sila Nanotechnologies you can invest indirectly in it through their largest partners, Daimler and TDK… and if you just want to invest in grid storage and electrification then I think Eaton is a reasonable “blue chip” idea in that space, or, of course, there’s always highflying Tesla as the poster child of the electrification revolution. If you force me to buy one of those right now, the only one I’m at all comfortable with is Eaton, but they report in a week and the story could change quickly. I don’t own any of these ideas, but if you have thoughts on the tease or the big-picture trend of battery storage, well, feel free to shout ’em out with a comment below. Thanks for reading!