Topic: LION entered into a partnership with SVOLT, which should allow the company to produce higher energy density (20% more vs currently used cells) NMC and LFP battery packs from H2 2024 onwards, in line with the communicated product portfolio expansion (see page 2).

Being able to offer a LFP-based battery back is crucial to fully break into the thriving energy storage market, which should already account for roughly half of FY23e sales (vs. 10% in FY22). In short, LFP offer longer lifespans, are safer and cheaper. The fact that they feature a lower energy density is neglectable when used in storage solutions (usually space and weight are not an issue), which is why they are the cell chemistry of choice. Following the necessary adjustments to the production lines (module assembly) and battery management software (total investment of ~ € 4m, eNuW) the new packs should hit the market by H2 2024e.While SVOLT will initially supply LION from its factories in China, this is seen to change in the next 2-3 years due to the planned construction of five Europe based cell production site until the end of 2023 (total capacity of 50 GWh).

Positive newsflow pending. Following the good Q2 prelims with 40% qoq sales growth to € 11.8m, LION looks set to record further sequential growth during the remainder of the year. With H1 sales of € 29m, a strong pick up of sales following the successful set up of its production plant at the end of Q2 is essential in order to meet the FY23 guidance of € 70-80m sales. What’s more, the 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.

All in all, 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%).

Following the share price weakness, LION is trading on a mere 0.6x EV/Sales 2023e (0.4x on FY24e), which we regard as unjustified. We hence reiterate BUY with an unchanged € 11 PT based on SOTP.