LICY // Orange 7 // Strike Price = {subscribe}
- 2 year CAGR = -28.7% (historical stock results Apr 17, 2021 to Apr 17, 2023)
- Future Growth Rate Estimate: {subscribe} (based on our analysis of past financial results, qualitative research, and Analyst estimates of future revenue and earnings)
- 4 year Price Target = {subscribe}
// WHY BUY
Li-Cycle expects to become one of the biggest sources of battery grade lithium in the US in 2024. Their 65 acre flagship facility in Rochester, NY is expected to begin production in late 2023. The Hub (process and distribute battery grade material) for the 7 other Spokes (collect and prepare old batteries and production scraps) are also in development (some are complete).
The current financial and ratio metrics are … look at your own peril 🙂
However, if you key in on the revenue you will see it was only $7.4M in 2021 and is expected to be $43M in 2023 and $710M in 2026. That’s a CAGR of 114%. But before you get too excited by that number, keep in mind that it isn’t until 2026 that the EPS is expected to become positive. Analysts estimate $0.45. At that point, if they are still growing rapidly (e.g. 25%+), their intrinsic value could be around $50.
Fortune favors the patient. And perhaps the brave, as only the brave will likely enter the fray at this point of pre-industrial scale production with capex, debt and dilution issues swirling.
But for those with foresight, patience and risk tolerance, this is a great opportunity to invest in a company that is helping to close the loop; the circular battery supply chain. They are a key cog that makes the new grid and transportation systems so much better than the existing fossil fuel system. Mine the atoms once and then continue to reuse instead of endlessly digging for fossil fuels.
Unlike drilling and fracking, the US seems to have an aversion to mining at home. To qualify for the clean vehicle tax credit’s ( https://crsreports.congress.gov/product/pdf/IN/IN11996 ) auto OEMs need 50% of their battery minerals to come from domestic sources or free trade partners. 80% in 2027. Mining operations take years and then some, to come online. Advantage Li-Cycle and other recyclers that are early to the party to fill the battery material supply void.
“Today, a typical EV battery weighs one thousand pounds. It contains twenty-five pounds of lithium, sixty pounds of nickel, 44 pounds of manganese, 30 pounds cobalt, 200 pounds of copper, and 400 pounds of aluminum, steel, and plastic. Inside are over 6,000 individual lithium-ion cells.” https://www.nationalreview.com/corner/just-how-clean-and-green-is-your-electric-car/
That mix will evolve rapidly but it gives you an idea of the volumes of material each vehicle possesses and the scale of materials involved when multiplied by millions of vehicles. E.g. Tesla alone is on pace to produce 1.8M+ vehicles in 2023. (About half of their 2022 deliveries have LFP batteries that contain no nickel or cobalt.)
// ChatGPT: WHY BUY
Li-Cycle is a battery recycling company that specializes in recycling lithium-ion batteries. There are several reasons why someone might choose to buy Li-Cycle, including:
- Environmental benefits: Recycling batteries helps reduce the amount of waste that ends up in landfills and can also help reduce the demand for new raw materials.
- Economic benefits: Recycling batteries can be more cost-effective than mining new materials, especially as demand for lithium-ion batteries continues to grow.
- Strategic advantages: Owning a battery recycling company can provide strategic advantages for companies involved in the production or use of lithium-ion batteries, such as securing a reliable source of recycled materials or reducing supply chain risks.
// CONCLUSION
Our future growth rate and price target would be significantly greater but we added a conservative 33% stock dilution into the calculation because stock owners need to pay for scaling up production in order to ultimately reap the rewards of the business. Dilution is lame, but debt can be deadly.
We want the business to survive-and-thrive. They are an important part of the energy transformation and closing the loop for circular battery supply chains and thus renewable energy. Li-Cycle had $518M in cash at the end of 2022 and $597M at the end of 2021. However, they appear to need $370M for Capex in 2023 as they build out their Hub and Spokes. More money, via debt or stock dilution is likely to be required.
Metal recycling is often collection-preparation-distribution and smelters, etc repurpose. Battery recycling requires a chemical processing plant in between preparation and distribution. That is costly.
Our target price may be over {subscribe} the current price but don’t expect the stock to get there linearly. It may take 3.75 of those 4 years to start marching towards that target. Markets can get excited and move these young, earnings-negative companies up to high valuations, but they can also hate on them for ages. At this point profitability is expected for Li-Cycle in 2026, going from an EPS of ($0.19) to $0.45. Becoming profitable gets investors excited. Show me the 💰as someone once said.
Our price target is also based on a PR multiple of 10 which is conservative for a company growing as rapidly as Li-Cycle. This is a young company so position size accordingly in your portfolio.
Also note, the BIG gains are made from waiting patiently, possibly for several years, but during that time your investment can look ugly. Know thyself before making that kind of investment. You don’t want to cave to Wall St FUD or have to sell when the market is down and your thesis hasn’t had time to play out.
// CATALYSTS
Their 14 building flagship industrial scale production facility in Rochester, the first of its kind in North America, is expected to be operational later in 2023 and to become one of the biggest sources of lithium in the US by 2024. “The Energy Department says providing loans to battery recyclers helps to increase battery material supply faster than loans to mining companies.”
More info about the US gov loans and relations with GM here: https://gmauthority.com/blog/2023/03/gm-partner-li-cycle-gets-375m-loan-to-build-battery-recycling-plant/
According to the Feb 2023 promo video ( https://www.youtube.com/watch?v=-i-LiT-n0Fg&t=101s ), production of battery grade materials will be:
- LIthium Carbonate: 7,500 – 8,500 tonnes/year
- Nickel Sulphate: 42,000 – 48,000 tonnes/year
- Cobalt Sulphate: 6,500 – 6,500 tonnes/year
- Manganese Carbonate: 4,000 – 6,000 tonnes/year
- Copper Sulphide: TBD tonnes/year
- Patented process recovers up to 95% of battery grade materials
- No high heat processing
- Minimal air emissions
- Minimizes wastewater
- Expected to process 35,000 tonnes/year of Black Mass (crushed and shredded battery cells) or the equivalent of 90,000 tonnes of Lithium-ion batteries
Expanding spokes for the hub in Rochester, into Europe. Germany in H2 2023 with a capacity to process 30,000 tonnes of battery material per year. France and Norway, 10,000 tonnes each starting in 2024. Spokes in existence include Kingston, ON, Arizona and Alabama. https://li-cycle.com/operations/
// RISKS
Construction delays, cost overruns, cash on hand, or lack thereof and significant changes in battery chemistries that Li-Cycle systems are not equipped for.
The cost of virgin material is less than that of the recycled material. Unlikely in the shorter terms but possible in the long run if miners are fighting for survival.
Competition. One of several competitors will be J.B. Straubel, a Tesla co-founder, who in 2017 started Redwood Materials to recycle batteries. In 2021 they had a valuation of $3.7B. Li-Cycle has a market cap verging on a billion. Redwood has potential to be the big fish in the pond when these businesses hit their stride in the next few years, but with the amount of batteries that we collectively will be producing, and thus recycling, the pond should be big enough for more than one fish. Redwood has yet to announce any IPO intentions.
// NEWS & COMMENTS
Mar 6, 2023
SA // hold: I’ve Become Less Happy With Li-Cycle
The real point here is my walking back more than a bit on my view of a year ago. The basic ideas of the plan still seem fine. It’s the implementation, the execution, that seems to be a bit lacking.
It is still true that being able to gain access to material to recycle is the first and most essential part of any recycling plan. So, the plan is fine. It’s just, well, where is the activity?
// GGI 💬
Waiting for a company you have invested in to scale up production can feel like an eternity. Luckily the wait for this one is now expected to only be 6 months or so (“later in 2023”).
Feb 1, 2023
SA // hold: Upside Still Good But Possible Capital Raise Is An Overhang
To sum it up for Li-Cycle (NYSE:LICY), things are going quite well operationally. However, financially, LICY seems to have hit a wall where they need to raise much more capital to tide through CY23. While the upside still remains significant and attractive, I recommend existing investors to size down their position to side-step near-term impacts and new investors to wait for near-term uncertainties to pass before investing.
// GGI 💬
We have a Strike Price, timeline and thesis. We have our plan, now it’s time for Li-Cycle to execute their plan.
Jan 8, 2023
SA // buy: The Time Has Come For This EV Battery Recycler In 2023
My [1 year] target price for Li-Cycle is $11.30, implying an upside potential of 126% from current levels.
Li-Cycle is well positioned in the lithium-ion battery market as the rapid rise in demand of electric vehicles has led to a large supply of and large increase in capacity for the production of lithium-ion batteries.
The company is an early mover in the lithium-ion battery space, and with increasing requirements to source battery materials locally, as well as a general trend of a shortage of battery materials needed for electric vehicle production worldwide, this bodes well for Li-Cycle as a leader in the space. As the company has a strong technological advantage and a patented business model, it will enable Li-Cycle to maintain its moat against peers. Furthermore, the company is constructing and ramping up operations of its 7 spokes and 1 hub in the near-term that will lead to exponential growth, in my view.
// GGI 💬
Hubs and spokes? ChatGPT: “Li-Cycle’s hub and spoke business model involves the construction of regional processing facilities (spokes) that collect and process spent lithium-ion batteries, with the processed material transported to a central hub facility for final refining and product manufacturing. This model allows for efficient and cost-effective recycling of lithium-ion batteries, reducing waste and creating a sustainable supply chain for critical battery materials.”
Nov 20, 2022
SA // buy: Li-Cycle Has Enormous Potential In A Multi-Billion Dollar Market
Li-Cycle (NYSE:LICY) is one of the more exciting companies in the battery industry; they specialize in recycling lithium batteries that are used in a broad range of technical devices and EVs. During the recycling process, the company recovers the raw materials and resells them back into the market. The company was founded in Ontario in 2016 and went public via a SPAC in August 2021.
// GGI 💬
Don’t let the SPAC fact spoil the mood. SPAC isn’t a synonym of scam. Generally, it is a way for early stage companies to go public with a war chest to continue to develop their operations. Some deserve and succeed, some don’t. Caveat emptor. SPACs are essentially a way for non-accredited investors to participate in the venture market. Risk-tolerance and patience are required in large doses to participate. In the case of Li-Cycle, they firmly appear to be in the deserve and succeed camp.
