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Short description: Short description::Novel motor and energy storage business set to benefit from huge growth in demand for emissions reducing technologies
| Risk/return | Risk/return::High |
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| Country of incorporation | Country of incorporation::United Kingdom |
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| Investor type | Investor type::All |
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| Market | Market::Public |
Summary
Path Investments has completed the reverse takeover of DG Innovate Limited (now renamed “DGI PLC”), an advanced research and development company focusing on novel electric motor technologies and energy storage solutions. Working with a range of partners, including major transport and energy companies, research bodies and the UK government, DGI PLC is currently moving to the commercialisation stage of its development, developing products with applications across a range of end uses.
£4.6 million raised to advance towards first significant product sales. DGI PLC will now be focused on the development and commercialisation of its technologies. Its strategy is to evolve from being an R&D business into a Tier 2 supplier and/or technology licensor to the electric mobility and energy storage industries. To fund this, £4.6 million has been raised via a share subscription and warrant exercises.
Enhanced Drive Technology - EDT. DGI PLC is developing multi-platform, ultra-high efficiency, compact, cost effective electric motors and electronics which have applications across a range of markets. The company has focused on developing electric drive systems which aim to deliver improved performance and range over existing technology by reducing energy losses and improving efficiency. Simulations have shown these can increase the range of a leading passenger EV by up to 25%, from the same battery pack.
Enhanced Battery Technology - EBT. DGI PLC is developing fully-recyclable, sodium-ion (Na-ion) batteries using anode active materials as a key enabling technology. The intention is to offer comparable or greater energy density to incumbent battery technologies (such as lithium and lead based) at a lower cost and with reduced environmental impact. A pilot scale pouch cell production line was recently built and will allow the manufacture of A5 size cells for testing.
DCF analysis shows significant upside if product sales ramp-up as planned. Our DCF analysis shows that DGI PLC’s business model looks to be potentially highly profitable. We see a significant scale up in product sales from 2025, with EBITDA margins in the mid-40 per cent level leading to strong cash flow. Discounting at a rate of 20% we derive a value to equity holders of £156.43 million. We initiate coverage of DGI PLC with a target price of 1.192p and a stance of Conviction Buy.
Operations
Corporate Background
Path Investments PLC was previously a cash shell which listed on the Main Market of the London Stock Exchange in March 2017 with a strategy to acquire energy assets. The company then raised £3.85 (gross) million at 0.25p per share to finance its activities in March 2021.
DGI PLC transaction
On 13th August 2021 Path announced that it had entered into a conditional sale and purchase agreement to acquire 100% of DG Innovate Ltd, an advanced research and development company focusing on novel electric motor technologies and energy storage solutions. The shares were temporarily suspended from the date of the announcement, with the transaction classed as a reverse takeover under the LSE rules. Consideration for the deal was set at just over £32 million, paid for by the issue of 5,397,451,305 new shares in the company at a price of 0.6p each. A further deferred consideration of £5.4 million, to be satisfied by the issue of 895,610,844 additional shares on the first anniversary of completion, will become payable should the company sign one or more supply agreements prior to this date with a combined potential value of £5 million or more.
At the time of the initial announcement, Path agreed to provide a secured loan facility to DGI PLC of up to £600,000, with an initial £300,000 provided on signing of the agreement. The remaining £300,000 was provided in September 2021. A further £450,000 loan facility was agreed in February 2022.
The relisting on the LSE was completed on 8th April 2022, with Path Investments changing its name to DGI PLC to reflect its new operations. Following completion, the company is focused on implementing its business plan for the development and commercialisation of DGI’s novel electric motor and energy storage technologies. To fund this, as part of the relisting process the company raised £2.55 million at a price of 0.5p per share via a subscription for 510 million new shares. In addition, warrant exercises raised a further £2.077 million.
The net proceeds from these, along with the existing cash in Path, will be employed for working capital purposes including: increased commercial efforts, admin expenses, investing in new R&D staff, development costs and capex, with £0.8 million being used to pay back certain DG Innovate Ltd. loans and interest. Overall, the acquisition and associated funding is expected to provide the basis to develop DGI PLC as it advances further towards product commercialisation in the short to medium-term.
Operations Overview
DGI PLC was founded in 2009 by engineer and inventor Martin Boughtwood. With its main facilities in Caerphilly, Wales, the business is an advanced research and development company focussed on making sustainable and environmentally considerate improvements in the two areas of electric drive technology and energy storage. Working with a range of partners, including major transport and energy companies, research bodies and the UK government, DGI PLC is currently moving to the commercialisation stage of its development, developing products with applications across a range of end uses.
The business operates from a 6,000 square foot research and development facility in Caerphilly which has features including a clean room, dedicated high voltage test safe area and a prototype construction and battery pack assembly facility. Currently, 17 staff are employed, with the highly educated team (including five PhDs) having a mixture of electronics, software and mechanical engineers and materials scientists. The business currently focuses its R&D on the two areas of novel electric motor technologies and energy storage solutions (discussed in detail on pages 6-11).
DGI PLC has historically utilised tens of thousands of hours of high capacity super-computer processing and modelling capability at HPC Wales, one of the UK largest high-performance computing centres. In recent years, DGI PLC has contracted Exeter University to progress its atomic scale simulation and analysis enabling the company to compete globally for research and innovation that requires state-of-the-art computing facilities to simulate and solve complex scientific problems.
Funding
To date DGI PLC has financed its activities via a mixture of equity, debt, grant and research funding. Prior to the reverse takeover, equity funding brought in c.£2 million via three main rounds. Loan funding meanwhile has come from shareholders, the Coronavirus Business Interruption Loan Scheme and the loans provided by Path Investments prior to completion of the reverse takeover.
Grant and research funding has been more significant, with grant funding of c.£0.8 million received from the Welsh government, and a total of c.£2.3 million (with c.£0.3 million outstanding) from development agency Innovate UK under its Faraday Challenge and Automotive Transformation Fund. Faraday Challenge is a scheme supporting new research projects to improve the safety of batteries for use in electric vehicles and as stationary power sources. The biggest source of funding has come from UK Government, with c.£10 million provided through two contracts signed in 2013 and 2014 for research into electrostatic motors and energy storage, along with other government contracts to the value of c.£2.0 million.
Prior to the reverse takeover, technology development funding for DGI has been staggered and uncertain in terms of timing. Following the associated fund raises the cash position of the wider group is expected to provide sufficient working capital to undertake DGI PLC’s planned development work, cover overheads and required capital expenditures through to the signing of initial supply agreements.
Patents
Over the past five years DGI PLC has protected its intellectual property by filing a number of patents in seven key markets around the world - UK/Europe, North America, China, Russia, India, Japan and Brazil. To date, 11 patents have been granted, with a further seven pending and a number of drafts under consideration. Patents include for a novel electric motor and corresponding architecture along with energy storage apparatus, an advanced stabilised ring drive for marine applications, a suspension system, more novel motor arrangements and a vacuum cleaner.
Milestones
Since 2009, DGI PLC has achieved a number of milestones, further advancing its technology towards workable applications in commercial products. Early results proved the viability of its electric motor concept in 2012, with a laboratory demonstration of the motor in 2015, first proof of concept with the delivery of new supercapacitors to the UK government in 2017 and the first successful lab demonstration of a hub motor in 2020. Alongside numerous development projects DGI PLC is also currently working towards the integration of its electric drive systems into an existing all-wheel drive UK government vehicle with a view to testing and, on declaration of commerciality, retrofitting some of the UK existing fleet.
In 2013, DGI PLC commenced its energy storage research activities. In 2018, the Company began to develop its fully-recyclable, sodium-ion (Na-ion) batteries using anode active materials as a key enabling technology. With grant support from Innovate UK, the company completed installation of a pilot scale pouch cell production line in early 2021, which will allow the manufacture of large format cells in commercially relevant packaging.
Product Development
DGI PLC is currently developing a range of products alongside partners including major transportation and energy companies, research institutions and the UK's Ministry of Defence. These products, which are nearing field trials and commercial deployment, include a range of novel electric motors, generators and advanced control systems, as well as materials for supercapacitor and battery systems.
Enhanced Drive Technology (EDT)
DGI PLC is developing ultra-high efficiency, compact, high reliability, cost-effective electric motors and electronics which have applications across a range of markets. In this business segment, the company has focused on developing electric drive systems which aim to deliver improved range over existing technology, based on the same battery capacity, by reducing energy losses and improving efficiency.
Background
To get an idea of the potential of the company’s technology it’s good to have a basic understanding of how electric vehicles (EVs) work. Put simply, an electric vehicle is powered by an electric powertrain. They are used instead of the internal combustion engines (ICEs) seen in liquid fuel powered vehicles. The powertrain contains the set of components that generate the power required to move the vehicle. It contains a number of key parts including the battery, which stores the energy needed to run the vehicle, power-electronics, software and electric motor. The power-electronics in an EV (the inverter), is a device that converts DC power from the battery to the AC power used by the motor. The inverter can change the torque and speed at which the motor operates by continually adjusting the magnitude and frequency of the alternating current.
The job of a motor in an electric vehicle is to convert electrical energy (from the battery, via the inverter) to drive the vehicle's wheels through the application of torque (rotational force). Typically, motors work through the principles of electromagnetism and have two critical components; the stator – static electro-magnets; and the rotor mounted on a rotating axle. The coil becomes an electromagnet when current flows through it, with the attractive and repulsive forces of electromagnetism causing the rotor to spin continually as long as it receives a steady and controlled flow of electric current. The rotor is connected to the wheels and hence moves the vehicle.
DGI’s focus has been upon addressing one of the main challenges in electric mobility; the range that EVs can travel before the battery needs to be recharged. As well as battery capacity, range is determined by powertrain efficiency. DGI has concentrated on improving both these fundamental factors.
Technology
EDT is a platform technology based on novel motor and power electronics’ architecture. Its key differentiators aim to reduce copper losses in the motor and improve reliability. The term copper losses refers to the energy dissipated (and therefore lost) by resistance in the copper wire used to wind a motor coil. EDT achieves a reduction of copper loss via a number of innovations including a novel shortening of the length of copper coil wire in the motor; multiple parallel power electronics architecture; changing or duplicating the location of the permanent magnet; and elimination of the need for permanent magnets by novel magnetic circuit design.
As a result, EDT is able to run at lower voltages (as low as 50V instead of 400-800V), with reduced heat dissipation and together with better cooling, delivers advantages in terms of motor performance, reliability, and safety compared to existing solutions. This provides EDT with very low thermal constraints, enabling continuous operation at maximum power. The high motor efficiency across a large part of the speed/load range enables more miles from the same battery compared to more conventional motors.
Overall, a key benefit of EDT is increased energy efficiency in an electric vehicle. This was demonstrated in recent simulation which predicted that the system increases the range of a passenger EV by up to 25% from the same battery pack, depending upon the drive cycle the vehicle travelled.
Applications & Projects
EDT is currently at a Technology Readiness Level (TRL) of 4. This is an Industry-Standard ranking system used to assess the maturity level of a particular technology, with level 4 suggesting indicating a prototype has been demonstrated in a test or operational environment, with performance demonstrating the viability of the technology.
As a platform technology, DGI PLC sees applications for EDT across a number of industries, with the technology offering multiple benefits across a range of sectors which use electric drive systems. These sectors include automotive, aerospace, marine and energy in multiple vehicle types including passenger cars, buses, pick-up trucks, helicopters, ships, submarines and wind turbines.
The company is currently working on a number of projects for the application of EDT, with a focus on the commercial and defence automotive sectors, where product orders and other pre-order enquiries have already been made. Key partners include the UK government (Ministry of Defence), a major tier 1 supplier to commercial vehicle sector and a zero-emissions marine manufacturer.
With internal product testing at an advanced stage and external client testing expected within 2022. Some of these projects include:
UK Government/Ministry of Defence - DGI PLC has developed, with MoD funding, an electric hub motor, inverter and vehicle controller for potential use in the UK government’s fleet of all-wheel drive vehicles. Internal testing has been completed and four units have been delivered to the MoD for integration into an initial vehicle ahead of testing, which is expected to commence during 2022. Upon successful completion of field trials there is the prospect of further new vehicle drivetrain orders and potentially retrofitting existing all-wheel drive vehicles. We understand that this particular deal has a high potential for significant near/medium-term product sales.
Tier 1 supplier to commercial vehicle sector JV - Discussions are underway with an un-named major global Tier 1 supplier to commercial vehicle OEMs which manufactures powertrain components, with the aim of incorporating the system in its future electric drivetrain solution.
Marine drive - Discussions are underway with large scale marine drive projects to enable significant reduction in emissions and energy consumption.
Enhanced Battery Technology (EBT) In its second business segment, which started in 2013, DGI PLC is developing fully-recyclable, sodiumion (Na-ion) batteries using anode active materials as a key enabling technology. The intention is to offer comparable or greater energy density to incumbent battery technologies at a lower cost and reduced environmental impact. The company is currently developing a safe and environmentally friendly storage cell using non-toxic and non-rare earth materials, with the target of the displacement of lithium batteries with a safe, non-toxic sustainable alternative.
Background
According to the International Energy Agency, global sales of electric vehicles increased by 41% to c.3 million in 2020. It estimates that the number of EVs registered around the world will increase from c.10 million today to 145 million in 2030. Meanwhile, an October 2021 report from Fortune Business Insights is looking for the global electric vehicle market to grow from a value of $287.36 billion in 2021 to $1.312 trillion in 2028, growing at a CAGR of 24.3%.
The advancement of the electric vehicle market has had a knock on effect for lithium, with the metal being a core component of the lithium-ion (Li-ion) batteries used to power electric vehicles. In fact, lithium-ion batteries have captured pretty much all of the EV market, as well as being used in many other technology applications. A July 2021 report from analysts at ResearchAndMarkets suggested that the global lithium-ion battery will grow from $41.1 billion in 2021 to $116.6 billion by 2030, growing at a CAGR of 12.3%.
While having their advantages, including having the high energy density that electric vehicles require, there are also many problems with Li-ion batteries. These mainly relate to high costs, fast ageing and sensitivity to high temperatures. The mining and use of the raw materials in the batteries has also come under criticism due to environmental and other ethical concerns. EVs themselves may be seen as being environmentally friendly but the way they are powered and constructed leaves a lot to be desired.
For example, extracting the raw materials used in Li-ion batteries (including cobalt) requires large quantities of energy and water. This is especially so in the salt flats method of lithium production where it is estimated that 500,000 gallons of water is needed to produce one tonne of lithium. In addition, lithium batteries have low rates of recycling and their production involves the use of elements and chemicals which if leaked into the environment can prove toxic to both human and animal life. Processing the lithium-ion anode graphite, which is mainly derived by burning petroleum pitch, is a by-product of processing fossil fuels. All of this is helping to drive demand for cleaner and safer battery chemistries, including those based on sodium.
One of the major advantages of sodium-ion batteries is their sustainability. Sodium is a much more abundant element in the Earth’s crust, amounting to 23,600 parts per million, or 35,000 ppm in sea water. This contrasts with lithium at only 20 ppm and lead at 14 ppm. What’s more, sodium supply is global while lithium production is primarily focussed on a small area in South America. Overall, sodium can be produced much more cheaply and sustainably than lithium and lead, both of which have lengthy, expensive and environmentally damaging production processes. Sodium-ion batteries have the added advantage that they can be discharged to zero volts, unlike lithium batteries where the copper current collectors start to dissolve. The presence of this undischarged stored energy creates a safety risk while in transit; with no risk, sodium is much safer to transport.
While sodium-ion batteries are a number of years behind lithium-ion batteries in terms of technology, the general market belief is that sodium-ion, when fully developed, should be suitable for applications similar to those where lithium-ion batteries are currently deployed.
In a recent article published by the American Chemical Society, author K.M Abraham stated: “We can foresee Na-ion batteries with hard-carbon anodes and cobalt-free cathodes as sustainable lower-cost alternatives to Li-ion batteries for applications such as short-range electric vehicles and large-scale energy storage (ESS) in a world that is increasingly being transformed to wind, solar, and hydroelectric power, which depend on battery energy storage for uninterrupted, around-the-clock, performance.” Source: ACS Energy Lett. 2020, 5, 11, 3544–3547. Publication Date: October 23, 2020 https://doi.org/10.1021/acsenergylett.0c02181
Technology
Based on its underlying materials development work DGI PLC has a core anode technology, used as a key enabling technology for sodium-ion batteries. Along with partners including the University of Southampton it has developed a high energy density anode material – an anode is the positive electrode in a battery through which a positive current of electricity flows, with the cathode being the opposite negative electrode.
For its raw material, DG is working on processing an abundant source of bio-waste which currently goes to landfill. This adds to the company’s green credentials as it will have negative equivalent CO2 emissions, leading to the belief that the product will command a premium price. The company believes that its research has brought about a novel low energy processing methodology to synthesise a material for electrodes and provides cell-level storage density beyond that of lead acid batteries, and equivalent to lithium-ion phosphate cell performance.
This research also provides advances in high-energy density capacitors (devices that store electrical energy physically in an electric field as opposed to chemically in a battery) and high-capacity sodium cells. These advances are also being incorporated into hybrid energy storage systems (HESS) aimed at combining higher power and energy density along with improved cyclability over current battery technology. EBT is currently at a Technology Readiness Level 3/4, implying that design rules have been established and lab based performance results demonstrate the viability of the technology.
Applications & Projects
In terms of initial target markets for EBT, sodium-ion is currently regarded as more suitable for stationary energy storage, for example from solar and wind energy production, given the increased weight of sodium over lithium – sodium’s atomic weight is more than three times higher than lithium. Here, DGI PLC believes its technology can offer cost, safety and environmental benefits over lithium.
However, sodium-ion cells have exceeded the storage density of lead acid batteries by a factor of four times and have achieved the equivalent of lithium-ion phosphate battery performance of 140 Watt-hours per kilogram (Whr/kg). Therefore, the company also sees the potential for disrupting the electric vehicles market, which as previously stated, pretty much sees a 100% share of lithium-ion batteries. DGI PLC is also developing high-capacity advanced composite materials which it believes can take Sodium-ion beyond 200Wh/kg to compete with NMC (Nickel, Manganese, Cobalt) and NCA (Nickel, Cobalt, Aluminium) based lithium-ion cells.
DGI PLC continues to seek to increase the performance of its cells through its ongoing materials research. To that end, it completed the building of a pilot scale pouch cell production line in early 2021 to allow the manufacture of A5 size cells for testing. During 2022 it intends to lease a second facility to provide additional space for its manufacturing and integration work. The company has stated that it is in collaboration and commercial contact with several companies throughout the supply chain with the view towards volume commercialisation in the medium-term.
Other Products and Technology
While DGI PLC’s focus is currently on the commercialisation of the EDT and EBT offerings discussed above, it also has a wider portfolio of technologies which it believes could also be monetised in the medium to longer term. These include novel supercapacitors, polymer film capacitors, advanced stabilised ring drives for marine applications, suspension systems and vacuum system enhancements.