Topic: LION reported Q2 prelims that reflect the beginning operational ramp-up of the recently commissioned production site. H2 should show further significant sequential improvements with new products to be launched during the next 12 months.

With serial production of battery packs having started mid-May, Q2 sales have shown 40% qoq growth to € 11.3m (Q1 with € 8m solely from selling former BMW i3 battery packs from its inventory). This was evenly generated from storage and mobility customers. Importantly, roughly half of the sold battery packs (€ 5.6m worth) were produced at LION’s new production site during the six weeks the site was operational. The remainder was still stemming from BMW i3 inventory. Despite the still low sales figure and one-off set-up/start-up costs, LION was able to achieve a slight EBIT profitability of € 0.3m or 2.9%. The gross margin stood at 22%. This should provide confidence in sustainable mid single-digit EBIT margins during the coming years once sales begin to pick up (eNuW).

FY23 guidance remains unchanged. Management continues to expect FY23 sales of € 70-80m (eNuW: € 75m) and a positive EBITDA (eNuW: € 0.2m). In our view, this should be reachable thanks to the € 45m order intake at the beginning of the year, increasing sales activities (incl. key personal hires) and a high quality product with automotive qualification.

Additional products in the pipeline. During the next twelve months, LION is seen to launch the second generation of its current battery pack (battery cells with higher energy density) as well as an LFP-based battery pack. The latter is essential to fully break into the thriving energy storage market as this is the preferred cell chemistry due to beneficial properties when space and weight are not an issue.

LIGHT Battery project progressing. A LIGHT Battery prototype (immersion cooled battery pack for ultra fast charging and discharging) is seen to be delivered to an OEM for testing until end of Q3. While it is still an R&D project, we have so far not taken it into account for our fair value calculation.

LION looks well positioned to begin reaping the fruits of the strong underlying market dynamics. With its 2 GWh production capacity (an equivalent to 45k battery packs), the plant in Hildburghausen offers a revenue potential of € 360m with an EBIT of € 26m (assuming that pack prices decrease by 40% and EBIT margins of 7%). We hence reiterate BUY with an unchanged € 11 PT based on sum-of-the-parts.