Exro Technologies (EXRO.TO): Cell Driver brings greater control to new and used battery storage systems

Potential Game Changer in Battery Energy Storage

In previous posts we have discussed Exro’s Coil Driver technology (Link).  While much investor focus has been on this key aspect of the company’s business, particularly relating to timing of purchase orders from new customers, Exro possesses another technology with potential to diversify the revenue stream.

Exro recently rebranded its Battery Control System (BCS) to Cell Driver(Trademark).  In its simplest terms, the Cell Driver is a battery management system that provides health and charge monitoring and efficient charging / discharging of battery storage devices.  Exro’s advantage lies in their technology’s ability to control batteries to a smaller unit level with reduced likelihood of thermal runaway failure (i.e. fires).  Thus, Exro can take previously used Electric Vehicle (EV) batteries and, with its Cell Driver, provide useful storage longer than competitor options.

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Battery Basics:  Cells, Modules and Packs

In typical battery configurations used in Electric Vehicles, thousands of individual cells are utilized to generate the necessary power.  Typically, cells are connected in series in clusters called modules.  Then, several individual modules are arranged within the desired geometry into a battery pack.  Typically, a battery control system (essentially the battery’s brains) is added to monitor battery health, charge levels and to control electric current and manage power draws between the modules to ensure efficient charging and discharging without electrical failure.

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The battery management system is a key safety feature on battery systems as it reduces likelihood of electrical failures and fires.  We have likely all heard stories of EV’s burning for days once a fire starts.  The risk is that when a cell ignites, it gradually ignites the cells around it, causing a runaway fire that is difficult to extinguish.

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Exro’s Cell Driver differs from typical battery management systems in a few key ways:

1. Cell Balancing instead of Pack Balancing. The Cell Driver can monitor and control the battery module down the cell level. Typically, this only happens at the pack level. Why is this important? By controlling down to individual cells, the Cell Driver can balance charging and discharging on a more granular level. If it detects a fault in one cell, it can turn off and bypass that cell entirely. Competitors cannot monitor to the cell level, only the pack level. Hence, if there is a failure on an individual cell, this can result in the whole pack being deemed faulty and useless. In severe cases, individual cell failures can result in thermal runaways (extreme heating) which can lead to fires.

2. Extended life. Recalling the cell level control above, by being able to turn off faulty cells, Exro’s technology does not result in full packs being retired because of one cell failure. Thus, the Cell Driver is an attractive control system for second-life battery applications.

3. Reduced rare earth element demand. Longer battery life results in reduced demand for material inputs for battery fabrication. This is a win on overall environmental impact.

Positive Recent Developments

The Cell Driver has achieved some important milestones in recent months:

• Fail to Fail = Pass.  As part of its ongoing 3rd party testing and technical performance verification process, Exro’s Cell Driver was put through a test whereby a thermal runaway (i.e. fire) was attempted to be induced in the battery.  This process is key in receiving product certification from Underwriters Laboratory (UL).  This is a standard test that all battery control systems are pushed to the limit to determine at what current results in failure.  When the Cell Driver was stress tested, a thermal runaway could not be initiated.  Said differently, the battery could not be forced to fail with the Cell Driver as its management system.  We believe this sends a strong positive message for the applicability of the Cell Driver in second-life battery installation.

• ‘Made in Alberta’ energy storage agreement.  Exro recently announced it has entered into an agreement with Inferno Solar Ltd., an Alberta-based provider of solar panel and energy storage systems.  Under the terms of the agreement, Inferno will retain the right to use Exro’s Cell Driver in its applications and be the sole distributor for Western Canada for a period of 5 years.  Inferno intends to integrate the Cell Driver with its solar arrays and stationary energy storage systems branded as the Inferno System.  Applications will mainly be for Commercial and Industrial installations and the systems have the option to add charging infrastructure for EV’s.  The Inferno System can also act as a flexible energy asset, drawing energy from and producing energy into the grid in a manner similar to peak shavers, in an effort to reduce the overall cost of energy for the owner (i.e buy when energy prices low and sell when prices high).  The integrated Cell Driver / Inferno solar systems are expected for initial delivery in 2Q2023.

Putting some numbers to the forecast

We have previously outlined an initial revenue forecast for Exro’s Coil Drivers alone here (Link).  We see the Cell Driver as providing further near-term revenue potential for the company.  Admittedly, the Cell Driver potential is difficult to forecast at this early stage; however, we present an initial scenario below to show impact on revenue. 

Exro’s Cell Driver systems come in base size of 90 kW-hr.  With the Inferno agreement signed, we see this potentially delivering 5,000 kW-hr in the first year, growing in 20,000 kW-hr by 2025.  We give credit for Exro to sign a similar agreement over coming quarters, and with a similar growth profile could add another 12,000 kW-hr by 2025.  At 90 kW-hr per unit, this would imply a total of 80 Cell Drivers in 2023 growing to just over 350 Cell Drivers in 2025.

Our research suggests Tesla’s Powerwall storage system sells for about US$700/kW-hr.  For Exro, we take a more conservative pricing view of US$500/kW-hr as a rough initial estimate.  At this price point on our preliminary growth forecasts, this generates $5.0M of incremental revenue for the company in 2023, growing to $21M in 2025.

This scenario would result in revenue estimates considerably ahead of analyst consensus as it stands currently.  To be clear, the ball is in Exro’s court to deliver on signing customers and executing its growth plan.  However, we feel the numbers we present are achievable.

Final Thoughts:  Right Solution in Growing Demand Market

As more countries push for EV adoption and more reliable means of storing and deploying energy via small-scale systems, we see Exro’s Cell Driver as being a unique solution in a growing market.  While all eyes seem to be focused on the company’s Coil Driver technology, the Cell Driver could be a company-maker in its own right.  The Cell Driver provides a number of benefits with multiple applications as shown below.

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Key catalysts for investors to watch are further progress on Exro’s Purchase Order momentum for its Coil Drivers.  We also expect the company to evaluate strategic partnerships to accelerate its growth agenda.  Both the Coil Driver and Cell Driver require rigorous third-party testing and validation, which takes a considerable amount of time to verify safety criteria before broad application.  We look for achievements on this front to be a key event to improve visibility for the company to move to commercial development and manufacturing.

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Disclosures

4Front is compensated by Exro for the preparation of these materials.  4Front receives its compensation in cash.  4Front participated in Exro’s recent equity raise and is currently a shareholder of the company.

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