Electric vehicles (EVs) are growing in popularity. According to the International Energy Agency, the global stock of electric cars hit the 10m mark in 2020, a 43% increase over 2019, despite the pandemic. A critical component of any EV is the battery, and lithium-ion batteries are the dominant technology today.
But these types of batteries were originally developed for smaller devices such as mobile phones. EVs essentially use bigger versions, so there’s a lot that can be done to improve them.
I think Ilika (LSE: IKA) could be the British stock that advances EV battery technology. Let’s take a quick look at the benefits of a solid-state battery, and then see if Ilika is a buy for my portfolio.
Solid-state batteries
Solid-state batteries are designed to replace the liquid lithium electrolyte in conventional battery cells with a solid. The very nature of the liquid means it limits the achievable specification of the battery.
Solid-state batteries have the potential to speed up charging times (solving a major limitation of current EVs), and boost capacity so cars can travel longer distances. They will also be smaller and lighter. What’s more, the liquid electrolyte is the flammable component of the battery, so replacing this with a solid will enhance the safety of EVs.
It’s no surprise that VW says this technology is the most promising for the future of e-mobility. The company is working with US-listed company Quantumscape to commercialise solid-state batteries by 2025.
Ilika’s business
This brings me to Ilika, the UK-listed company. The firm is a pioneer in solid-state battery technology for a wide range of applications in industrial IoT (Internet of Things), medical devices and EVs. It uses a ceramic-based lithium solid in its batteries.
Ilika’s Goliath division is its solid-state battery tech unit for EVs and for cordless consumer electronics. It says Goliath has the potential to replace liquid-based lithium batteries in EVs.
The limitation is just how long Ilika is from commercialising its solid-state battery from the Goliath division. Management has guided for another 18 months of development. So I do have some doubts here. Having worked in research & development myself, it’s one thing being able to develop a product in a controlled setting, but much more difficult to manufacture at high volume.
Ilika will have to figure this out if it wants to capitalise on the growing EV market.
Should I invest?
The potential here is huge, in my view. But Ilika is only one of many companies developing in this space. Quantumscape is a much larger company, as an example.
Ilika is also loss-making, and only generated £2.3m in revenue in its last fiscal year. Of that revenue, £2m was actually grant income from seven projects it has ongoing with Innovate UK. The balance sheet looks fine, for now. But there’s been a series of capital raises, the last being in July, to enable continued investment in its ongoing development programmes.
The market value of Ilika is close to £220m, which seems high considering the level of revenue it generates. Though, if Goliath is able to capitalise on the growing EV market, then the company could be many multiples of this value in the future.
For now, I’m going to keep watching Ilika’s developments. I’m excited by the sector, but it’s a touch early for me to buy the shares.
