Since my past two articles in May 2021 and May 2022 on Seeking Alpha, Ideal Power’s (NASDAQ:IPWR) share price has risen approximately 90%. In my view, the increase in price is highly but not completely reflective of the company’s progress and engagement with multiple significant participants in the company’s target markets. The increased confidence in and visibility of its B-TRAN technology by multiple stakeholders, accompanied by the recent commercialization progress, also remain major factors contributing to the increase in Ideal Power’s market value.
Revisiting The Innovative Technology and Its Many Applications
Ideal Power’s B-TRAN, or bi-directional, bipolar junction transistor, is a cutting-edge semiconductor technology that holds the potential to replace traditional technology such as insulated-gate bipolar transistors (IGBTs) and metal-oxide-semiconductor field-effect transistors (MOSFETs) for high power-switching applications across multiple industries. A few of the key benefits of the company’s B-TRAN technology include bidirectional switching, lower conduction losses, improved heat management, a compact design for products incorporating B-TRAN, and reduced costs, thus providing energy efficiency and cost savings. B-TRAN could enable novel power conversion architectures and other applications, including bidirectional switching-required AC-DC converters and, vehicle-to-grid, vehicle-to-home, and vehicle-to-vehicle charging. Furthermore, in addition to being fabricated in standard silicon, B-TRAN can also be fabricated in silicon carbide, allowing it to support and withstand much higher voltages. With improvements in the silicon carbide supply chain, the development of the silicon carbide B-TRAN would open new use cases for the technology. The B-TRAN technology is protected by a growing patent portfolio that includes 71 issued and 22 pending patents.
This technology holds great promise for multiple burgeoning and multi-billion-dollar industries such as electric vehicles, renewables, industrials, and others. Within the EV industry, Ideal Power’s B-TRAN technology holds the potential to provide new inverter topologies, increased driving range, and reduced battery size while enabling fast charging, all at reduced costs. With all their benefits, B-TRAN-enabled circuit breakers could replace the use of electromechanical breakers and legacy solid-state circuit breakers for renewable energy, utility grid, and aircraft technologies.
FY22 Operational Highlights
Ideal Power has piqued the interest of leading EV manufacturers, global semiconductor manufacturers, and major government agencies by utilizing its innovative technology and partnership with NAVSEA (the U.S. Naval Sea Systems Command). The company has made significant progress in its B-TRAN test and evaluation program in recent months and entered into its first custom development agreement with a top 10 global automaker.
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Addition of multiple significant participants in the test and evaluation program – In the past year, Ideal Power has added multiple participants across various industries while progressing on its NAVSEA program. The participants included a second top 10 global EV automaker, domestic aerospace and defense systems integrators, a non-domestic designer and manufacturer of grid solutions, and two universities evaluating B-TRAN for EV charging applications, to name a few. The increased interest from multiple partners is likely the result of the improved visibility into the B-TRAN technology and its potential benefits. Adoption of the company’s B-TRAN technology, be it in EVs, defense systems, or utility power grids, will likely improve the reliability of the end product. Electric cars, air defense ships, aircraft, and solar grids equipped with B-TRAN modules will likely see improved performance, dissipating much less power and heat and occupying much less storage, thus enhancing the value proposition of the end product. Additionally, Ideal Power is continuing its collaboration with Diversified Technologies, Inc. (DTI) by delivering B-TRAN’s for solid-state breakers. The company is expected to complete its deliverables with DTI in the first half of 2023. Eventually, I expect the positive feedback and the partnership to lead to a potentially long-term contract or arrangement between the U.S. Navy and Ideal Power (via DTI).
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Fabrication and packaging partner supports Ideal Power’s operational activities – In addition to Teledyne, the company has announced the qualification of another domestic fabrication partner and progressed on qualifying for a non-domestic high volume fabrication partner. Ideal Power has also finalized packaging partners with significant capabilities, such as designing and fabricating multi-die B-TRAN modules. Engagement with multiple partners seamlessly supports its test and evaluation program, commercialization efforts and end goal to create a fabless model.
Launch of First Commercial Product
As planned, Ideal Power recently announced the launch of its first product, the SymCool Power Module, developed on the back of its innovative B-TRAN technology. The SymCool Power Module finds applications across multiple avenues that include solid-state circuit breakers, inverters, common-emitter applications, matrix converters, etc. Complemented by multiple advantages, the solid-state circuit breakers utilizing the SymCool power module can replace conventional electromechanical circuit breakers, IGBTs, and MOSFETs-based breakers.
Exhibit 1: Application examples. Source: Company website
Equipped with bidirectional capability, SymCool reduces the number of high-voltage switches compared to IGBT modules, providing a more compact and cost-effective solution. This is further accompanied by reduced power wastage and a double-sided cooling mechanism, thus surpassing the expectations and needs of the circuit breaker market. I believe this commercialization is a pivotal point for Ideal Power and reflects management’s vision to deliver and ability to ’walk the talk.’ The company has already been receiving inquiries relating to the application of B-TRAN technology within circuit breakers from various commercial and research entities. Building on this, I expect revenues to flow in by Q3 2023 and margin expansion to be highly dependent on sales ramp and product adoption.
Major Milestones and Catalysts to Watch for
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Initial sales, market adoption, and sales ramp-up of the SymCool Power Module.
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Progress with major participants within the test and evaluation and/or development programs, i.e., the two top 10 global automakers.
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Completion of deliveries to DTI under the NAVSEA program and further progress.
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Commercialization of its second product, the B-TRAN-enabled multi-die intelligent power module, primarily targeting renewable energy and other high-end markets.
Financial Position
Ideal Power has successfully maintained a debt-free financial profile with a cash balance of $18.5 million as of Q3 2022. The average cash burn in the past three quarters is ~$1.5 million. The company’s latest investor presentation states that its cash runway is through at least Q4 2024. With commercialization in place and another product to be commercialized in Q3 2023, it is implied that the cash burn is likely to increase. To support that, the company recently filed for a mixed shelf offering of up to $50 million. I believe the cash burn is likely to be higher than expected but is sufficient to support the company’s commercialization activities and its test and evaluation program through Q3 2024.
Valuation and What Should Investors Expect?
Ideal Power has made considerable strides in the past year, securing partnerships with key players in its target markets. Despite this progress and an uptick in stock price, the company’s current market value of approximately $77 million does not fully reflect the potential of its revolutionary B-TRAN technology and the significant positive impacts it could have on various industries. The market appears to be undervaluing the company’s potential returns while exaggerating its potential risks. As a micro-cap company with a small market cap and low daily trading volume (~20,000 shares), any positive developments could lead to a significant increase in stock price. Additional disclosure of the names of the key participants in its test and evaluation program would add significant value to the company. Nonetheless, the long-term growth story based on differentiated and superior technology, wide applications, and addressable multi-billion-dollar markets remains intact. Even though Ideal Power’s value is still speculative in nature, I remain bullish and reiterate my previous valuation stance of $120 – $140 million, accounting for risks, market opportunity, and its commercialization efforts.
Risk Profile
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Despite the progress Ideal Power has made in promoting its B-TRAN technology, there are still potential hazards that could impede its commercial success. One of the main concerns is supply chain disruptions, which could delay or even hinder the adoption of the technology. Additionally, there is a risk that a more advanced and cost-effective technology may emerge and overtake B-TRAN.
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Another concern is the pace of B-TRAN adoption by customers. While partnerships have been established, there is currently no concrete evidence of revenue that would indicate widespread adoption of the technology. A delay in commercialization or a lack of customer uptake could negatively affect the company’s valuation.
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Furthermore, Ideal Power’s cash reserves may not be sufficient to sustain its operations during a prolonged commercialization process or higher expenses. This could lead to a need for additional funding, which could result in equity dilution for shareholders.
Concluding Remarks
Ideal Power’s superior technology could create a sustainable moat for the company, which is complemented by an experienced management team. Even though there might be a few uncertainties around the company over the next 12 to 24 months, I believe this might provide investors with an opportunity to invest at attractive levels. At present, the company embodies a speculative venture that offers a favorable risk-reward profile.
*Ideal Power is a client of Quantum Media Group, LLC
Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.
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