Battery Tech & Energy Storage: 2023 Valuation Multiples

As the world progresses towards a more sustainable future, Energy Storage companies are playing an increasingly important role in developing new technologies. Energy Storage is a key component of many sustainable energy systems, such as wind and solar power. Without it, these intermittent sources of energy would be unable to provide a consistent supply of power.

Energy storage is important for three main reasons:

1. It enables renewable energy sources to provide a consistent supply of power even when the sun isn’t shining or the wind isn’t blowing;
2. it helps to even out the demand for electricity on the grid, which makes the grid more efficient and lowers overall costs;
3. it allows for vehicles that would normally rely on fossil fuel—think cars, trucks or even planes—to switch to electric power that can be obtained through sustainable sources.

Energy Storage companies are working on a variety of different technologies to store energy from renewable sources. When we think of storing energy, it’s easy to picture cutting-edge batteries like the ones that are being developed for electric cars and smart homes, but there are actually many different forms of energy storage, and as many different types of companies are working to fine tune the tech behind it. Here are a few examples:

• Lithium-Based Batteries: These include the Li-Ion batteries that currently power most electric devices and vehicles, but also newly developed technologies using anything from oxygen, to sulphur and graphene together with Lithium. In these batteries chemical energy is stored in rechargeable cells, with the main challenges to the technology being energy density and durability.
• Flow Batteries: Not dissimilar from Lithium-based batteries, these systems use liquids to dissolve chemicals and pump them through a series of cells. These systems have theoretically unlimited longevity, but current system struggle to extract as much power as their Li-Ion counterparts.
• Compressed Air: Leveraging relatively old technology together with cutting-edge materials, Compressed Air Energy Storage (CAES) systems “bottles up” air into high-pressure tanks, generating kinetic energy while releasing it. While these systems have lower energy density and generate less consistent power outputs compared to batteries, they are safer and more cost effective at larger scales, which allows them to be used for grid stabilisation projects such as the one announced last year by Canadian company Hydrostor.
• Thermal Storage: Thermal Energy Storage (TES) simply consists in storing hot or cold matter in thermally insulated units to use it as energy at a later date. These systems are particularly important for solar power storage, as well as for heat management in urban areas.
• Flywheels: While these devices can be extremely simple (a wheel attached to a shaft in a low-friction environment that uses inertia to conserve energy) and have been used since early steam locomotives, their modern counterparts employ state-of-the art tech and materials and are particularly important for load balancing on electrical grids.
• Pumped Hydro: Pumped hydro currently the most cost-efficient energy storage option. It consists of pumping water to a higher altitude and subsequently use it to generate hydroelectric power. Despite its cost efficiency, reliability and incredibly high capacity, it has obvious geographical requirements that cannot be found everywhere and have clear shortcomings when it comes to more mobile applications.

Energy storage is critical for developing sustainable energy technologies that can meet the world’s growing demand for energy. Without effective energy storage, renewable energy sources like solar and wind would only be able to provide a limited amount of power, and off-the-grid devices and vehicles would have limited range and usability.

However, developing new energy storage technologies is a complex and expensive undertaking, which is why companies in the space tend to require years of R&D before becoming profitable, and often rely on M&A deals with larger businesses to remain operational.

Given that many of these companies remain private for their whole lifetime, sometimes never posting their own revenues, it’s particularly hard to establish a benchmark for valuation multiples of energy storage companies. However, because different energy storage and battery technologies are easily comparable in terms of their economic viability, it makes sense to use a cohort of battery tech companies to try and gauge the median multiples for the sector.

The Global X Lithium & Battery Tech ETF (LIT), managed by Mirae Asset Financial Group, “invests in companies throughout the lithium cycle, including mining, refinement and battery production, cutting across traditional sector and geographic definitions.”

Of the 43 companies in the index, only 15 have their profit and revenue publicly available. Therefore, the statistical significance of this cohort is very limited, especially if used as a benchmark for private companies, but nonetheless interesting to examine.

Energy Storage & Battery Tech Valuation Multiples

It’s fair to say that investment in Battery Tech has been surging, with as much as $26.4 invested into the sector in 2022 alone, according to a report by Mercom Capital.

The popularity of this industry is reflected in its median Revenue multiples, which nearly quadrupled from 1.3x in Q1 2020 to 4.8x in Q2 2021, and despite a correction throughout the following year following the broader market, median EV/Revenue multiple for Energy Storage & Battery Tech bounced back in Q4 2022 at 3.5x.

Source: YCharts

The variance within the cohort has increased massively. Revenue multiples were below 7x for all the companies in the cohort in Q1 2020. In Q4 2022, the top-performing 25% of the cohort had revenue multiples between 4.5x and 30x.

Source: YCharts In the chart above, the lines indicate the range of EV/Revenue multiples in our cohorts, while the boxes highlight the Interquartile Range (IQR), which is where the median 50% of the cohort ranks based on their valuation multiple.

Median EV/EBITDA multiples were around the 10x mark by the beginning of 2020, and grew steadily to approach 20x in Q1 2021. In Q4 2021 the median EV/EBITDA multiple for Battery Tech companies had drastically fell back to 9.9x.

Source: YCharts

The decreasing ratio between EBITDA and Revenue multiples suggests that profitability in such a research-intensive space was historically hard to achieve, but is now within reach for more and more players.

Source: YCharts In the chart above, the lines indicate the range of EV/EBITDA multiples in our cohorts, while the boxes highlight the Interquartile Range (IQR), which is where the median 50% of the cohort ranks based on their valuation multiple.