Dragonfly Energy (NASDAQ: DFLI) continues to score milestone achievements. In response, its share price has increased by over 40% since the start of the month. While impressive, the trend line suggests that the surge could be the precursor to significantly higher prices. That's not unwarranted speculation: DFLI is better positioned today compared to when its stock traded over 6X higher at $16.31 over the past 52 weeks. But the gap is closing. News before the open yesterday sent shares higher by 7%. Then, DFLI announced joining the Nevada Battery Coalition (NBC) as a founding member, being 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 in the organization. (* share price of $2.28, Yahoo! Finance, 08:46 AM EST)
Other news contributes to the bullish move. Last Thursday, Dragonfly Energy announced completing its U.S. lithium battery cell pilot line. Critical to those wanting accretive value, DFLI checked that box in the release, adding that through 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 estimates 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. 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.
Revenues are expected to accrue near-term, which should be pleasing to investors. DFLI noted that the pilot line is scheduled to begin producing cathode material during 3Q23, with full cells coming off the pilot line by the end of 2023. Appreciate what's been put into play, as DFLI noted constructing its pilot line and successful anode production as a crucial step in producing battery cells domestically from its manufacturing plant in Reno. That's only some of what contributes to near-term growth.
Another value driver, its patented dry powder coating technology, is coming to fruition at scale. This represents a significant turning point for the company as it expands its business interests to include cell manufacturing, a mission having the potential to reduce energy costs and establish a closed-loop domestic supply chain.
Contributing to National Battery Independence
The best part about DFLI products and technology is that they are greatly needed. While not earning the deserved headlines and being shrugged off by politicians, 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 quick and decisive, and with political rhetoric constant and the fact that China regularly mentions its intent to spread its influence into Taiwan, a single headline could cause disruption far beyond and faster than many expect.
That's the worst-case scenario. Fortunately, there’s a better alternative: DFLI has products and IP technology that can immediately put the U.S. on a pathway to battery energy independence. Therefore, expect them to play along. For example, they recently awarded smallcap 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 may not be the last from the over one trillion dollar infrastructure package signed into law. And it's a fair assumption any company showing promise in accelerating energy independence, regardless of its market cap size, would get support from the United States - and probably far beyond just its wallet. DFLI is in a position to capitalize.
That should help investors understand the larger picture. Yes, DFLI currently trades at about $2.10 a share. However, an argument can be made and supported that at that level, investors are not appraising the impact DFLI can have toward helping the U.S. achieve the independence desired. Frankly, at $2.10, DFLI is undervalued on a straight assets valuation. Moreover, it would still be leaving out the value inherent to its robust IP portfolio.
Appraising the right way would be to factor in DFLI's industry-best batteries, its 55 filed and pending patents safeguarding its leadership position, and the inherent value of targeting business within the two massive markets of clean energy and EV. After that comprehensive calculation, the investment proposition is more straightforward: DFLI at current prices presents an opportunity too attractive to ignore.
Surfing the Momentum Wave Into 2023
Adding further to the attraction is that DFLI is growing. 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.
Furthermore, what’s 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 the production and manufacturing of 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 its 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.
Selling Into Red-Hot Demand
Expect similar deals to accrue, as DFLI’s safe, clean, and powerful batteries should attract plenty of new client interest. Considering its robust IP portfolio, DFLI doesn't need to rely on off-the-shelf sales. They have a unique ability to work with significant 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 certainly answer their call, 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 key takeaway from the value proposition 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.
In fact, they don't need to stop there. They can say much more, including comfortably telling the battery world that its batteries are safer, more efficient, and more potent 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 Serves Diversified Demand
Still, 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.
Marketing Best in Class, Lead-Acid-Free Power Sources
An additional value driver is contributing to DFLI's growth. Marketing through its Dragonfly brand, the company is accelerating 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 like.
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.
Dragonfly Energy Fueled to Deliver a Strong 2H/2023
Indeed, DFLI works from a busy agenda. More importantly, there is a purpose behind its initiatives. That's not going unnoticed, demonstrated as 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, of approximately $22.8 million, before deducting underwriting discounts and commissions and offering expenses payable by the Company and excluding the exercise of any warrants.
That strengthened the balance sheet. On the capital side, DFLI joined the Russell 2000® Index. This inclusion can sometimes cause wild swings, especially when market news inspires a "risk-off" mentality that indiscriminately lowers good company stocks. Take that into consideration when DFLI prices appear to drop for no reason, as those following the activity may have an opportunity to add to positions and enjoy potentially quick upside once markets regain footing. When all is said and done, company fundamentals will provide the ultimate direction for a company and its stock.
All told, Dragonfly Energy has done tremendous work to support the case that its growth trajectory will do more than keep pace; it will likely steepen as revenues from deals made in Q2 and Q3 begin to post. Playing this proposition from the LONG side may be the best strategy. After all, markets do correct, and by summing DFLI's parts to value the whole, the answer supports a bullish signal: the path of least resistance for DFLI stock is likely higher.
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