SES AI Corporation (NYSE: SES) is a global leader in the development and manufacturing of high-performance Lithium-Metal (Li-Metal) rechargeable battery technologies for electric vehicles (EVs), Urban Air Mobility (UAM), and other applications. The company's mission is to power a new era of electric transportation on land and in the air with its differentiated Li-Metal battery technology.
Business Overview
SES AI was founded in 2012 and is headquartered in Woburn, Massachusetts, with additional research and development facilities in Shanghai, China, and Chungju, South Korea. The company's core focus has always been on developing Li-Metal battery technology for the EV market. In 2015, SES received its first strategic investment from General Motors, and in 2021, the company signed joint development agreements (JDAs) with major automakers like GM, Hyundai, and Honda to jointly research and develop Li-Metal battery technology.In addition to EVs, SES is also committed to the Urban Air Mobility (UAM) market, which the company sees as an exciting adjacent growth opportunity that requires little additional development beyond its EV efforts. UAM operates on a fleet model where revenue per passenger per mile is the primary metric, and weight is a paramount concern. SES believes its Li-Metal batteries' step-change in energy density can significantly improve the profitability of UAM operators by allowing aircraft to carry more passengers, cargo, or fly further distances.
To ensure practical safety across its product lines, especially as it prepares for commercial deployment, SES has significantly expanded the use of its proprietary "Avatar AI" technology to monitor battery health and predict incidents. The company has made impressive progress in improving the prediction accuracy of its Avatar AI, increasing from just 60% in 2022 to 92% in 2023, with a target of 95% accuracy by the end of 2024.
Lastly, SES is integrating sustainability into its operations and innovation to enable supply chain efficiencies, accelerate production timelines, and reduce costs. The company recently announced initiatives to develop state-of-the-art recycling technology for Li-Metal batteries and work on dry electrode technology to reduce chemical solvent evaporation.
Financials
For the full year 2023, SES reported an annual net loss of $53.4 million, with no revenue generated from its principal business activities. The company's annual operating cash flow was -$56.4 million, and its annual free cash flow was -$72.2 million. These financial results are consistent with SES's strategy and budget as a pre-commercialization stage research and development company.In the first quarter of 2024, SES reported GAAP operating expenses of $21.3 million, which included $4.8 million in stock-based compensation expense. The company's cash used in operations was $9 million, as it received $11 million in payments from its OEM partners. Capital expenditures for the quarter were $6.8 million.
Liquidity
As of March 31, 2024, SES had $319 million in liquidity, which the company believes will be sufficient to meet its working capital and capital expenditure requirements for at least the next 12 months and to fund it through commercialization. For the full year 2024, the company expects cash usage from operations to be in the range of $90 million to $100 million and capital expenditures in the range of $20 million to $30 million, resulting in total cash usage for the year in the range of $110 million to $130 million.Milestones and Partnerships
In the first quarter of 2024, SES reached two significant milestones that the company believes no other Li-Metal battery manufacturer has achieved before. First, SES became the world's first Li-Metal battery manufacturer to have two B-sample JDAs underway, one with Hyundai and another with a major global automaker. The Hyundai partnership is particularly noteworthy, as it represents the first time a Li-Metal battery manufacturer is building a line within an automotive OEM facility.Under the Hyundai JDA, SES will be investing in building and operating one of the largest capacity Li-Metal lines in the world within Hyundai's electrification research center in Ulan, South Korea. This line is expected to be ready in the fourth quarter of 2024, with SES's Avatar AI infrastructure ready several months thereafter. The increased production capacity will allow for more training of the company's Avatar AI and more extensive testing of the Li-Metal cells.
In addition to the Hyundai partnership, SES has also signed a B-sample JDA with another major global automaker, further validating the company's technology and manufacturing capabilities. These B-sample agreements are crucial steps towards the commercialization of SES's Li-Metal batteries for both EV and UAM applications.
Risks and Challenges
As a pre-commercialization stage company, SES faces significant challenges in developing a Li-Metal battery that can be commercialized for use in EVs, UAM, and other applications. The pace of development is often unpredictable and subject to delays. Additionally, the company has a history of no revenues and net losses, and it expects to continue to incur losses for the foreseeable future. While SES expects to become profitable eventually, its internal assumptions may prove incorrect, and it may never achieve or maintain profitability.Another key risk is that SES's Li-Metal technology is untested in actual EVs and may ultimately prove unworkable. If the company's batteries fail to perform as expected, its ability to develop, market, and sell its batteries could be harmed. Delays in the pre-manufacturing development of the company's battery cells could also adversely affect its business and prospects.