This Tiny Canadian Battery Company is Taking on Tesla, Panasonic, and Samsung

The Canadian manufacturer of lithium-ion batteries, run by an adjunct professor of electrochemistry at the University of Toronto, has generated just CAD 47 million ($36 million) in revenue in the last five years. Yet investors are betting it can grab a slice of a market that's estimated by Bloomberg New Energy Finance to be worth at least $250 billion by 2040.

Shares of Mississauga, Ontario-based Electrovaya have risen almost five-fold to a market value of CAD 297 million ($228 million) over the past 12 months, outpacing the WilderHill New Energy Global Innovation Index and its top performer SMA Solar Technology, which doubled its returns. Tesla, which shipped its first commercial Powerwall this year, is down 20 percent.

Lithium-ion batteries are one of the latest ways of storing energy from solar, wind and other sources and are used to power everything from cars to household appliances. Bloomberg New Energy Finance estimated in a study released in June that utility-scale batteries will be as widespread in 12 years as rooftop solar panels are now.

Recent transactions by Electrovaya support the company's meteoric rise, said Carter Driscoll, analyst at FBR Capital Markets & Co. The company signed three deals worth almost C$400 million in the past month alone and expects to begin delivering on those contracts by the fourth quarter, according to a statement.

"What's helping the company is that they are focusing in the right areas of the renewable energy market," Driscoll said in a phone interview from New York. Electrovaya's deals were signed with manufacturers that give them high margins, he said. They include a CAD 288 million three-year contract with a European manufacturer of residential-energy storage units, a CAD 16 million deal for electric buses, and a CAD 80 million contract to supply a US firm with batteries and systems. Electrovaya hasn't identified the companies.

"The sudden size of their recent deals is intriguing and points to potential that they really may have special technology," Driscoll said.

Electrovaya's proprietary technology, protected by about 400 patents, is what Chief Executive Officer Sankar Das Gupta says gives the company an edge. Its flexible ceramic separator is capable of withstanding unusually high temperatures, guarding against the kind of fire that has tripped up other manufacturers, he says. The company's solvent-free production process is also easier on the environment and the batteries provide nearly double the life cycle of competitors, according to Gupta.

The CEO forecasts CAD 200 million in revenue in 2017 and anticipates more deals. Gupta, who owns 54 percent of the company according to data compiled by Bloomberg, says he has no plans to be bought out, despite receiving some interest.

"We don't want to be a part of anyone," Gupta, 65, said in an interview at Bloomberg's Toronto offices. "We're hoping to become the next General Electric."

Taking on goliaths like Tesla and Panasonic, which are jointly building a $5 billion lithium-ion gigafactory in Nevada, is no easy task, Driscoll said. A representative for Tesla said the company declined to comment on Electrovaya.

The Canadian company has had to come up with some innovative funding solutions. It purchased the largest lithium-ion battery manufacturing plant in Europe from Daimler for a fraction of its tangible assets last year after the automaker decided to quit the business. Electrovaya got the plant by offering a cost-free chance to transfer an asset that had become inoperable amid Germany's tougher environmental regulations, while also keeping on its employees, Gupta said.

Most importantly, the deal included the factory's proprietary ceramic separator technology. Fires have been a big problem for lithium-ion batteries, grounding Boeing's 787 Dreamliners for three months in 2013, before the company redesigned them. Samsung, which says it holds the largest market share for batteries, also uses ceramic separators, a Samsung representative said in an e-mail. Panasonic declined to comment.

"With the combined German and Electrovaya technology, we think we are way, way ahead of the Panasonics and Samsungs," Gupta said. The only comparable technology in the world, he said, may be Polypore International Inc.'s lithium-ion separator. That company was acquired by Japan's Asahi Kasei Corp. for $3.2 billion last year.

Electrovaya's new factory can generate as much as CAD 550 million in revenue, according to a November statement. If production surpasses that limit, Gupta said he'll look at acquiring similarly distressed targets in China and Japan.

Electrovaya's main issue is working capital, the CEO said. "For every CAD 200 million in revenue, we would need about CAD 40 million in working capital. We are looking at Canadian and German banks for loans, but they are very risk-adverse right now," he said. He hopes that support from Export Development Canada will help convince lenders to open up.

Execution is another risk to Electrovaya's long-term success, Driscoll wrote in a note to clients. The infant energy-storage market may also not grow as expected, he said. "Regardless, the company remains one of the best public upside plays on energy equipment," he said in the interview, setting the target price at CAD 3.25 per share.

"Up until six months ago, no one paid attention to some small, unknown Canadian company," Gupta said. "But in the last couple of weeks, a lot of the majors are now noticing us."

© 2016 Bloomberg L.P.