Enovix Co. (NASDAQ: ENVX) develops and manufactures next-generation silicon-anode lithium-ion batteries with applications in the smartphone, wearables, mobile device, VR/AR headset, laptop, IoT and electric vehicle (EV) markets. While the oils/energy sector company is producing batteries on a small scale now, it plans to ramp up mass production by the fourth quarter of 2025 at its new high-volume manufacturing Fab2 facility in Penang, Malaysia.
The energy density of conventional lithium-ion batteries falls critically short to meet the escalating power demands of modern devices powered by artificial intelligence (AI).
The Evolution of Power Needs: Cell Phones to Smartphones
In 2005, 3G cell phones had a 2-inch TGT display powered by a 900 mAh and 8ml battery. By 2023, they grew to a 6.8-inch HDR10+ display smartphone with an Octo-Core processor with 100x zoom camera on 5G cellular using a 5,450 mAh and 26 ml batter in 2023. From 2010, smartphones grew 1.8X in size while the battery grew 2.4X in size. Battery volume as a percentage of the smartphone grew from 17% to 23% from 2010 to 2023. However, energy density improvements released in 2024 have stagnated to just a 1% YoY increase as conventional lithium-ion technology is reaching its limits.
The Technology Behind Silicon Anode
Enovix's batteries have more density since they utilize their patented 3D silicon anode lithium-ion battery architecture. Rather than use the conventional graphite anode with a 2D design, Enovix uses silicon, which stores more than twice the lithium in the anode resulting in more density.
Smartphone OEMs have had to increase the battery size to keep up with the growing power demand. They aren't ready for the AI boom, as more AI-powered apps will severely drain all-day performance.
Enovix is Also Targeting the EV Market
Enovix EV batteries have a thermal advantage resulting in a 10X improvement in internal temperature gradient with a 0% to 80% charge in 5.2 minutes. Enovix cells can retain 88% of initial battery capacity even after 1,500 charge cycles. This puts them in competition with QuantumScape Co. (NYSE: QS) as it plans to start commercialization of its solid-state lithium-metal (SSLM) EV batteries in 2025.
QuantumScape’s 24-layer SSLM battery has demonstrated a 95% energy retention rate after 1,000 charge cycles.
Investors Await Mass Production
In its third quarter of 2024, Enovix reported an EPS loss of 17 cents, which was 4 cents better than consensus estimates. Revenues were $4.3 million, which was above its midpoint guidance of $3.8 million. Investors still consider Enovix a pre-revenue company until they scale into mass production.
Fab2 Mass Production Facility Update
The company opened its Fab2 facility in Malaysia and commenced shipping battery cells to some customers. A total of 11 customers have inspected its new facility. The Agility Line is fully operational. Initial yields are comparable to the final levels achieved with its California facility and its first manufacturing line.
The company started shipping EX-1M batteries to customers for their qualification and mass production support timelines. Its High Volume Line's Site Acceptance Testing (SAT) is on track to be completed in the fourth quarter of 2024.
Smartphone Battery Production for Q4 2025 Launch
Enovix formalized a strategic partnership with a second-leading smartphone OEM with a top 5 market share in China. They will develop a 100% active silicon anode battery which will be customized for selected smartphone models targeted for launch in Q4 2025. Upon meeting its key outlined milestones, they are poised to enter the smartphone market with its high-volume production from Fab2 in late 2025. This helped jolt the stock higher.
Enovix CEO Raj Talluri stated, “We are thrilled to formalize this relationship, and we see it as a proof point of smartphones needing batteries with much higher energy density and capacity to satisfy the needs of AI-enabled apps. Upon meeting specified milestones in this new agreement, we will enter the smartphone market in 2025 with high-volume production out of Fab2 in Malaysia."
Management Loses Credibility With a Surprise $100 Million Stock Offering
The company gave off the vibe that it wasn't planning on any more stock dilution in the near term during its Q3 conference call, as they closed the quarter with $201 million in cash, despite burning through $50 million in the quarter. Management stated they had enough cash to fund its runway through 2026. However, Enovix blindsided investors and analysts with a 10.4 million share and $100 million secondary offering announcement the very next morning, causing the stock to sink 14%.
This move irked analysts so badly that it received a downgrade from Janney Montgomery Scott to a Neutral from Buy, with its target price slashed to $10 from $22. The analyst stated, “We take issue with the timing given the conference call messaging."
ENVX Stock Triggers a Symmetrical Triangle Breakdown
A symmetrical triangle is formed by a descending upper trendline resistance converging at the apex point with an ascending lower trendline support. A breakout occurs if the stock surges up through the upper trendline. A breakdown occurs if the stock sinks below the lower trendline.
ENVX's symmetrical triangle formed from the $18.68 swing high upper falling trendline resistance converging with the lower rising trendline that started from the $7.36 swing low. While the earnings report received an initial gap up on the bullish update, the news of the $100 million stock offering pummeled the stock through its lower trendline, triggering the breakdown.
ENVX fell to the $8.13 previous lower gap fill before rebounding back up through the $9.00 range. The daily anchored VWAP resistance is at $10.18. The daily RSI fell flat to the 38-band. Fibonacci (Fib) pullback support levels are at $8.13, $7.36, $6.52 and $5.33.
ENVX’s average consensus price target is $20.50 implying a 127% upside, and its highest analyst price target sits at $36.00. It has 9 analysts' Buy ratings and 2 Hold ratings. The stock has a large 35.16% short interest.
Actionable Options Strategies: Bullish options investors can enter ENVX on a pullback using cash-secured puts at the Fib pullback support levels or take a bullish call debit spread for less capital than owning the stock while minimizing the downside with capped upside gains. The giant short interest can trigger a short squeeze, but this is a speculative stock to begin with.
