Dragonfly Energy's (NASDAQ: DFLI) milestones reached have pushed its shares over 74% higher in July. And that's at its current $2.66 mark*. After announcing completing its U.S. Lithium battery cell pilot line and being added as a founding member of the Nevada Battery Coalition (NBC), DFLI stock scored $3.25, an over 119% increase from the month's start. While the stock has returned some of that high to profit taking, the trend line into the new week of trading is bullish, with shares adding 4% so far on Monday to the nearly 6% gain posted last Friday. (*share price on 07/31/23, Yahoo! Finance, 10:21 AM EST)
The bullish action is warranted. In fact, considering that DFLI is better positioned fundamentally and operationally compared to when it reached a 52-week high of $16.31, more likely than not, the path of least resistance for DFLI stock is higher. For excellent reasons. Foremost is that Dragonfly Energy continues adding milestones to its scorecard that position the company for accelerated 2H/2023 growth. Last week, they announced joining the Nevada Battery Coalition (NBC) as a founding member. They were also granted a seat on NBC's board of directors, which will be occupied by Dragonfly Energy's Chief Marketing Officer Tyler Bourns. Dominic Sinnott, Director of Government Affairs at Dragonfly Energy, will also participate as a member of the organization.
Before that, Dragonfly Energy shares surged on very high volume after announcing the completion of its U.S. lithium battery cell pilot line. Reaching that milestone can be a potent value driver, with the company noting that by leveraging its patented battery production process, they have begun successfully dry depositing anode electrodes using its pilot line at a level sufficient to support large-scale production. Dragonfly expects this pilot line can produce up to 150 MWh of domestically manufactured LiFePO4 (lithium iron phosphate) battery cells per year when operating at 70 percent efficiency. Moreover, it can provide that output while requiring less than 150 square feet of physical space per electrode and consuming less than 6 kW of power. In other words, it is cleaner, more durable power with a much smaller production footprint.
Revenues Expected To Be Energized
More than a better power-generating solution, it's a revenue driver. DFLI noted that the pilot line is scheduled to begin producing cathode material during Q3/2023, with full cells coming off the pilot line by the end of the year. Completing the construction of its pilot line and successful anode production is a crucial step toward producing battery cells domestically from its manufacturing plant in Reno. It's not the only initiative expected to send revenues higher.
DFLI's patented dry powder coating technology is coming to fruition at scale, representing a significant turning point for the company as it expands its business interests to include cell manufacturing, which has the potential to reduce energy costs and establish a closed-loop domestic supply chain. DFLI's value to the "supply chain" matters.
In fact, the most appropriate way to appraise DFLI is to factor in that its products and technology are timely to a need. Headlines are starting to reveal that the United States is far less energy-independent than one would expect. Worse, they don't have a consistent raw material flow to close the import gap. Part of the problem is needing essential ingredients to make its own power. For instance, the U.S. imports 100% of its graphite, primarily from China. There's no need to harp on the risk associated with that trade but know this: supply interruptions can be impactful in a bad way. And with the constant political rhetoric between the U.S. And China, it's fair to assume that a single headline could cause disruption far beyond and faster than many expect.
Of course, while meaningful disruption is the worst-case scenario, it does highlight the need for the U.S. to expedite gaining energy independence. And not just oil and gas. Battery power independence is just as important.
Contributing To Battery Power Independence
That's where DFLI can shine, with products and IP technology that can immediately put the U.S. on a pathway to battery energy independence. The over trillion dollar infrastructure bill could expedite that mission, noting that the U.S. is doling out millions to companies that can deliver results. And size doesn't matter. They recently awarded microcap explorer Graphite One (OTC: GPHOF) $37.5 million in an investment grant to explore and provide solutions to the market disconnect related to graphite.
That grant certainly won't be the last. Moreover, DFLI is positioned to capitalize, which should help investors understand the magnitude of the investment opportunity from a DFLI share price that exposes a valuation disconnect. In fact, at its current $2.66 price, an argument can be made and supported that investors are not appraising the impact DFLI can have toward helping the U.S. achieve the independence desired. Frankly, at $2.66, DFLI is undervalued on a straight assets valuation, neglecting the value inherent to its robust IP portfolio.
Appraising the right way would include inherent potential, factoring in DFLI's industry-best batteries, its 55 filed and pending patents safeguarding its leadership position, and the value of targeting business within the two massive markets of clean energy and EV. Including those inherent properties, the investment proposition is more straightforward: DFLI at current prices presents an opportunity too attractive to ignore. But there's more supporting that proposition.
Riding Momentum Into 2H/2023
Accelerating growth is also a value-adding factor. For its year-end 2022, Dragonfly delivered a solid performance, with its OEM segment growing by more than 300% YoY, representing approximately 39% of total sales, compared to roughly 11% in 2021. Growth continued through Q1 2023, with DFLI posting net revenues of $18.8 million, higher by 2.7% over the same period last year. For its bottom line, DFLI scored net income of $4.9 million compared to a net loss in Q1 2022. Appreciate that percentage growth, as rising revenues and a strengthening bottom line in any measure are impressive in the current economic environment.
Additionally, good can become even better. Deals announced after the quarter are value drivers that should positively impact Q2. For instance, DFLI announced a commercial offtake agreement that it believes will strengthen U.S. battery supply chains and invest in producing and manufacturing Nevada-sourced lithium. Moreover, the deal is expected to pave the way for continued investment in the state and provide Dragonfly with a domestic supply of lithium carbonate, a critical component in lithium iron phosphate battery cells. Striking another deal, DFLI announced that its Battle Born Batteries brand of lithium-ion batteries will be standard equipment on two ATC models: the Plā 700 – Travel Trailer Toy Hauler and the Plā 700 – Fifth Wheel Toy Hauler starting with 2024 select models as early as July 2023 and as an optional upgrade for the Plā 350 – Ultra Lite Travel Trailer Toy Hauler. Deal-making momentum on this front continued into Q3.
In July, Dragonfly announced it's Battle Born Batteries will be standard equipment in all nuCamp RV travel trailer and truck camper products beginning in the 2024 model year. It replaces the battery's sale as an option since 2022, with the updated agreement doing more to drive higher revenues. It also expands the partnership to fully integrated power systems supplied by Battle Born Batteries, including lithium-ion batteries, inverters, and additional components.
Timely To Serve Soaring Demand
More deals are expected, resulting from DFLI's safe, clean, and powerful battery's ability to attract plenty of new client interest. Remember, DFLI's robust IP portfolio provides a unique ability to work with significant and diversified sector players, opening potential opportunities with the growing pack of EV sector players like Tesla (NASDAQ: TSLA), Ford (NYSE: F), and General Motors (NYSE: GM), who are looking for best-in-class power alternatives to mitigate continued squeezing of production margins.
Dragonfly can answer their call and, more importantly, serve, leveraging over a decade's expertise in developing intellectual property focused on lithium-ion cell manufacturing. As importantly, their work is well-recognized, resulting from its energy source innovations revolutionizing an industry by making lithium-ion batteries more accessible to niche markets. That attention is expected to become more pronounced as its direct-to-consumer business segment earns more sales traction, a trend in progress.
In other words, with DFLI able to target multiple markets with products that offer distinct advantages over the competition, the case for a steepening revenue curve is strong. Another value driver is that as a leading manufacturer of deep-cycle lithium-ion batteries, DFLI is vital to helping ensure that developing a robust battery supply chain in the U.S. is more than an ambitious mission statement but a program in progress. This is where being better matters, a claim that DFLI can confidently make from manufacturing safer, more efficient, and more potent batteries than current lead-acid options.
Better yet, they can boast its batteries' design and assembly are completed in the United States. Most of its competitors can't say the same.
U.S.-Based Production Can Attract Grants
There's more to appreciate than DFLI being "American Made." Dragonfly's contributions are adding to research and development initiatives that highlight its non-toxic deep-cycle Lithium Iron Phosphate (LiFePO4) battery technology that is replacing lead-acid batteries across a broad range of use cases, including RVs, marine vessels, residential off-grid and backup storage, and industrial applications. Leading the market penetration, in part, is its innovative deep-cycle battery, the 270Ah 12V GC3, sold under the Battle Born Batteries brand. Its differences are so striking they earned patents for technology and design.
In fact, Battle Born Batteries' differences are advantages that serve the need to replace the millions of lead acid batteries that have flooded the markets over the previous decades. Unlike competing lead-acid alternatives, Dragonfly and its branded Battle Born Batteries products are environmentally safer, provide 2-3 times more power, last over ten times longer, are one-fifth the weight, charge faster, and require no maintenance. That's game-changing, and as is critical from a company and investor perspective, they are selling.
That's not surprising, knowing that changing to a Battle Born battery isn't difficult thanks to the flexible form factor of DFLI's battery pack design allowing for seamless installation. The battery is so innovative that it has been instrumental in shifting the RV industry standard to lithium. It spurred that change by offering increased energy density in a unique form factor. This has helped the GC3 gain popularity with installers serving overland, off-grid properties, and auto trailers. Several factors make it an excellent choice for these applications.
Dragonfly's BBGC3 utilizes the stable LiFePO4 chemical composition in cylindrical cells and the same advanced built-in battery management system technology found in other Dragonfly Energy products. In addition to better design, performance is impressive, providing 270Ah of power, making it ideal for a wide range of applications. Another advantage compared to alternatives is that the BBGC3 can be discharged to a 100% depth and charge up to five times faster than lead-acid batteries, highlighting its superior energy efficiency. Moreover, the battery's lifespan is designed to last between 10 and 15 years and is backed by an industry-leading 10-year warranty.
Best of all, Battle Born contributes to just a part of the total DFLI value proposition.
Manufacturing Best in Class, Lead-Acid-Free Power Sources
Additional value drivers contribute to DFLI's accelerating growth. Marketing through its Dragonfly brand, the company is increasing its pace of making its deep-cycle lithium-ion batteries mainstream to EV and off-grid users. The Dragonfly Energy brand serves its Original Equipment Manufacturing (OEM) customers and partners. One is with the industry-leading recreational vehicle manufacturer THOR. This relationship led to a strategic investment of $15 million into developing additional Dragonfly technologies. There's more to appreciate.
Additional income is generated from being designers and resellers of accessories, effectively making DFLI a total system integrator for its customers. That scope was enhanced after acquiring Wakespeed Offshore in 2022, which enabled Dragonfly to better integrate its storage systems with vehicle engines and alternators. Combined with battery pack monitoring and communication innovations, it sets the 2H/2023 stage for appreciable growth inherent to DFLI's focus on capitalizing upon revenue-generating opportunities that larger stationary storage applications present. It's made DFLI a more prominent provider faster than many may have expected.
Today, Dragonfly is recognized as an expert in lithium-ion batteries and entire lithium battery storage systems. That's earned value from having a robust patent portfolio continually strengthened by innovation, including Dragonfly's dry powder coating cell manufacturing technology and non-flammable battery technology.
Clean-Powered To Fuel 2H/2023 Performance
In addition, they have the capital to fuel getting bigger faster. DFLI reported the successful closing of its previously announced underwritten public offering, selling shares and a warrant to purchase at a public offering price of $2.00 per share, raising aggregate gross proceeds from the offering, including the partial over-allotment option and before fees, of approximately $22.8 million. That strengthened the balance sheet and, from a capital perspective, likely helped earn its place in the Russell 2000® Index.
Notably, when risk-off sentiment spreads, companies included in the index can experience wild swings that take the share prices of good companies lower indiscriminately. That reality may have contributed to recent weakness, noting that while the Nasdaq 100 may be doing well, the smaller Russell 2000 stocks don't always follow the same course. But, that dynamic also works the other way, meaning that when the bulls storm, prices can outperform to the upside.
And for DFLI, a company checking the right value boxes at the right time, upside potential may indeed be the path of least resistance. In other words, playing this valuation disconnect from the LONG side, supported by fundamentals, may be the wisest strategy.
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