Expion360 Inc.: A Uniquely Positioned Lithium-Ion Battery Player In An Attractive Niche

The lithium-ion battery is a product that has revolutionized the world and has changed the face of many industries ranging from automobiles to electronics as well industrial manufacturing. It is considered one of the fastest growing industries today with an expected growth as high as 18% for the coming decade. For this reason, lithium-ion battery manufacturers can be considered hot stocks to invest in, as they are operating in an expanding market pie. Our small-cap pick for the day is one such player within this domain that is operating in a specific niche, manufacturing cutting-edge premium lithium batteries used in recreational vehicles (RVs), boats, golf carts, industrial applications, residential applications, and off-grid applications – Expion360 (NASDAQ:XPON).

Company Overview

Expion360 designs, fabricates, and distributes lithium iron phosphate batteries and related accessories for RVs, golf, marine, industrial, domestic, and off-the-grid usages under the VPR 4EVER brand. It also sells industrial tie-downs, terminal blocks, battery monitors, and bus bars in various models. The company is also developing a home energy system under the e360 Home Energy Storage brand. The company’s batteries’ chemistry,  Lithium Iron Phosphate (LiFePO4), is designed for high energy density, dependability, longevity, and safety. Expion360 serves dealers, wholesalers, and original equipment manufacturers in the US and worldwide. Founded in 2016 as Yozamp Products LLC,  the company changed its name to Expion360 Inc. and is based in Redmond, Oregon.

Strong Product Differentiation

Expion360’s technology provides industry-leading battery pack flexibility for the most efficient energy storage and will power large vehicles like RVs and recreational boats. The compact and flexible nature of lithium battery packs makes them easy to install in RVs and boats and the company should continue to benefit significantly from this trend. Expion360 is concentrating on growing its market share in the deep cycle, off-grid, and stationary energy storage. The team believes that its products and vision are perfectly aligned with the Biden Administration’s National Blueprint for lithium batteries which calls for, among other worthy goals, a national effort to stimulate the onshoring of cell and pack manufacturing There are several factors that distinguish Expion360 from its competitors and provide long-term competitive advantages. In RV and marine transportation vehicles, lead-acid batteries have always been the standard. Expion360’s lithium-ion batteries outperform its lead-acid competitors in terms of capacity. Since the company’s batteries are made of lithium-iron-phosphate, they are expected to last for about 12 years, three to four times longer than some lead-acid batteries and ten times the number of charging cycles. Furthermore, despite being half the weight, their typical battery delivers three times the power of a typical lead-acid battery. Its battery packs are also extremely adaptable, allowing them to be seamlessly moved and used in a variety of applications. Since the management is confident in their designs and construction techniques, they plan to offer an industry-leading 12-year warranty on their batteries.

Growth Strategy & Target Market

The RV and marine industries are Expion360’s primary target markets. The management believes that the company is well-positioned to benefit from the rapid shift from lead-acid to lithium batteries. The company has several large retail customers, such as Camping World, and a national presence. The company is relatively confident of being able to scale rapidly in the RV market because of the high level of experience and network of Expion360’s founder, John Yozamp, who has pioneered a number of new recreational concepts in the RV industry.

Home energy storage is another focus market for the company and Expion360 aims to provide a low-cost, low-barrier-to-entry solution and a Do-It-Yourself (DIY) flexible system for those looking to power their homes with solar, wind, or grid backup. Along with the RV, marine, and home energy storage markets, Expion360 wants to expand the electric forklift and industrial material handling markets. When we talk about branding, the company’s VPR 4EVER product line Expion360 was launched in December 2020 for the RV and marine industry as a preferred conversion solution for lead-acid batteries. Management is developing the new e360 Home Energy Storage system, expected to be launched in 2024 and brings the potential for  high revenue potential and recurring revenue opportunities. Another interesting innovation in their pipeline is the Smart Talk product which allows multiple batteries in a bank to communicate as a single unit and connect to a network. The management intends to file for IP protection for Smart Talk once development is complete.

Strong Macro-Economic Drivers

We can look at multiple different addressable markets in the case of Expion360 such as the RV market, the marine market, the industrial handling market, and the golf cart market. If we look at the RV market alone, which happens to be an area of expertise of  management, a Mordor Intelligence report states the North American RV market was valued at $26.7 billion in 2020 and is expected to grow at a 5% CAGR to reach $35.7 billion by 2026. The reports also said that the U.S. has nearly 400 national chain RV dealers, demonstrating the strong demand for these vehicles. The impact of the Covid-19 pandemic was such that families have gradually started preferring camping holidays in the mountains/ forests/ by the lake as compared to outstation travel to minimize human contact which is driving RV sales. The fact remains that over the next decade and beyond, the trend of vehicle electrification is expected to be a significant growth catalyst for lithium compounds. The rapidly expanding lithium battery market sits at the crossroads of these trends. According to Markets and Markets, the lithium-ion battery market is expected to grow at a 12.3% CAGR from $41.1 billion to $116.6 billion between 2021 and 2030. This growth should be driven by global trends favouring clean energy. The Biden Administration has laid out a bold plan to address the climate crisis and build a fresh and equitable energy economy that gets carbon-pollution-free electricity by 2035 and positions the U.S. on track to achieve net-zero emissions across the economy. From consumer electronics to national defence, lithium-based batteries are becoming more and more popular and they also help electrify transportation and provide stationary grid storage, both of which are essential for developing a clean-energy economy. Thus, it is safe to say that Expion360 is operating in a hot market.

Key Takeaways

Source: TradingView Expion360 closed its IPO at around $7 and recently had its listing. It witnessed a standard post-listing selloff which is why it is trading at $5.24. The company has generated a top-line of $4.517 million in 2021, nearly 3 times the revenues it generated in 2020 which is exceptiona. Expion360 is currently trading at a price-to-sales ratio of around 7.5x which clearly does not reflect its future growth potential. It is worth highlighting that while many of its competitors are facing challenges sourcing components for lithium-based batteries, Expion360 is contracted to source lithium for the next five years. The company is catering to an attractive, growing niche and has a high-quality product and a solid innovation pipeline. Overall, we believe Expion360 is a solid investment bet at current levels.