Topic: LION secured a € 10m loan to facilitate future growth by making its production LFP ready, expanding its US sales team and investing into working capital.

LION has received a € 10m loan (eNuW: 9% interest) from Raiffeisen Bank (out of its Growth Basket programme) in order to increase the group's general financial flexibility but also invest into concrete measures that should help to facilitate growth. Most importantly, LION is seen to invest € 3-4m into the necessary adjustments to its production to be able to also produce LFP-based battery packs. This is essential in order to fully break into the thriving energy storage market (eNuW: 50% FY23 sales share), which prefers LFP over NMC Li-ion battery cells. We expect the adjustments to be completed in H1 '24e. Further, LION should also have to invest into working capital, pay the last tranche of the purchased equipment and expanding its US sales team.

H2 2023 to begin painting the new picture. With the re-qualification of its battery packs and the start of production end of May, LION has begun selling its own battery packs in mid-June. We hence expect the second half of the year to reflect the new business dynamics (strong growth, different margin profile, etc.). Thanks to an existing customer base (e.g. Karsan, Mandrill, Dannar) and continued good order momentum, the company should be on track to meet its FY23 guidance of € 70-80 sales.

A US-based production should be in the cards due to the quickly growing demand for Li-ion cells in the US coupled with the $ 369bn Inflation Reduction Act, which, among others, aims to significantly fund investments into the US energy infrastructure, including the whole EV value chain. Depending on the development of its customer base and how quickly the IRA begins to materialize, we see a high likelihood of LION building a US-based greenfield battery pack production, which would cost around € 25m, eNuW.

Newsflow to remain positive. With preliminary Q2 figures, which are scheduled for August 3rd, the company should provide an update on order intake and customer wins.

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 reiterate BUY with an unchanged € 11 PT based on sum-of-the-parts.