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Investors have been eyeing under-appreciated storage companies to bet on the AI revolution

Battery storage companies are booming, but can they catch Tesla?

When most people think of Tesla they picture its electric cars (or maybe a Cybertruck. I saw my first in New York last week). And when most people think of Tesla’s competitors, Ford, General Motors and other auto manufacturers come to mind.

But not Julian Nebreda, chief executive of Fluence Energy, a Virginia-based, publicly traded energy storage provider. “Tesla is probably our biggest competitor,” Nebreda told me. It is all due to Tesla’s significant — and perhaps under-appreciated — battery storage division.

Tesla launched a battery storage business in 2015. In April this year, Tesla reported record energy storage revenues of $1.6bn for the first quarter. “Energy generation and storage remains our highest margin business,” the company said in an earnings report.

Fluence went public in 2021 and was started by AES, a Virginia utility, and German energy company Siemens. AES started work on lithium-ion energy storage in 2007, and now Fluence is one of Wall Street’s favourite companies as it hopes to benefit from booming electricity demand underpinned by artificial intelligence.

“Data centre demand is not new. What is new is the urgency,” Nebreda said. “That is where we are going to play in terms of speed and getting permits, in terms of efficiency, we are the technology that is the fastest.”

While batteries are not as visually appealing as wind turbines or solar panels, they can play a crucial role in maintaining stable supply in electricity grids that are set to rely increasingly on intermittent renewable sources.

Growth in batteries dominated almost all other clean energy technologies in 2023, the International Energy Agency said in an April report. Last year, battery deployment in the energy sector increased by more than 130 per cent year over year. And while many people might associate batteries with electric cars, the energy sector accounts for more than 90 per cent of overall battery demand.

The AI revolution has undeniably captivated investors around the world. Chipmaker Nvidia’s market capitalisation briefly hit $3tn last week, worth the entire French Cac 40 stocks index plus most of Germany’s Dax. Investors have been eyeing under-appreciated, “picks and shovels” companies to bet on the AI boom. Storage companies such as Fluence are rising as one such business.

“We believe [Fluence] should appeal to a wide swath of investors,” those both in traditional energy and environmental, social and governance (ESG), JPMorgan said in a May 9 research report.

Surging investor interest in energy storage has opened doors to different technologies. Lithium batteries such as the ones Tesla makes are not the only way to bottle up electricity. Form Energy, a Massachusetts-based storage business, sells iron-air battery technology. Form argues its batteries can last much longer than lithium and are cheaper.

In December, Form won a $30mn grant from California for a project that will discharge power into the state’s grid for 100 hours. The award is part of a California Energy Commission programme dedicated specifically to investing in long-duration energy storage. And in Minnesota, Xcel Energy, a utility, is partnering with Form to deploy two iron-air battery systems at retired coal plants.

“Our 100-hour, iron-air battery is designed to deliver the demand dexterity needed to allow large industrial loads to be connected quickly,” Mateo Jaramillo, Form Energy’s chief executive, told me. I spoke to Jaramillo on a video call and it was my first interview with a chief executive who was wearing a yellow safety vest. He was calling me from Form’s West Virginia facility that is under construction.

According to Jaramillo, technologies already exist today that can be deployed quickly and at scale to meet rising electricity demand. For example, the excitement and investor dollars in small nuclear reactors might be overly optimistic, he said. These small modular reactors “while promising as a new grid resource, still have uncertain timelines and cost profiles”, he said.

One of the challenges for companies in the renewable energy ecosystem is trade restrictions.

“Geopolitics is a headwind,” Nebreda said, since some Fluence parts are coming from China. “We work with a global supply chain and that is important to deliver products at good prices,” he said. “A world in which you cannot send things around effectively is a worry.”

Another hurdle is cheap electricity. In some parts of the US, energy capacity costs “have just fallen through the floor,” PJ Deschenes, a managing director in Nomura’s “greentech” division, told me. For some investors, there was not enough pricing power to motivate new battery investments on their own, “and that is a problem”, he said.

“You will ultimately need a more clear payment for capacity in the system,” Deschenes said.

If electricity grids are hit by extreme weather or crack because of a crisis, surging prices could force the need for more batteries, he said. “It is one thing if you are paying 20 cents a kilowatt hour. It is another if you have to pay $5.”

The biggest challenge for storage companies might be keeping up with Tesla. Nebreda acknowledged that Tesla also did residential battery storage, and “clearly their cost of capital is much better than ours”.

As critical as batteries were for renewable energy storage, “the challenge is how new entrants compete with incumbents such as Tesla”, as well as BYD, China’s rival electric-vehicle manufacturer, said Arash Nazhad, a managing director at Moelis who co-leads the company’s cleantech group.

Elon Musk’s company is clearly a juggernaut. But the evolution of competing energy storage companies will have ramifications for the global clean energy transition in ways that do not involve electric vehicles. (Patrick Temple-West)

Smart read

I recommend Rachel Millard’s interview with Keith Anderson, chief executive of Scottish Power, who said UK ministers needed to “tackle head-on” the practical and bureaucratic problems holding back the UK’s green transition.

Companies need the next prime minister to act as their champion on the global stage

One of the most exciting companies in the world right now is Mistral, an artificial intelligence start-up based in Paris. In just one year it has gone from an idea in the minds of its founders to a well-funded company able to compete with the likes of OpenAI.

Some of the best international technical talent in the world, including former senior figures from Nvidia and Tesla, are now choosing to start their companies in Paris. Last month, the French tech conference VivaTech attracted more than 165,000 visitors — a new record.

These are all signs that the French tech ecosystem has reached an inflection point. We are a long way away from the (once referred to) stuffy, insular France of a decade ago, when you could count the number of thrilling start-ups on one hand.

What has changed? According to attendees who gathered at a small post-VivaTech event we organise, the answer is not policy but something even more powerful: marketing. More specifically, figures from the sector in France credit the youthful President Emmanuel Macron who, since elected in 2017, has been a passionate advocate for the tech ecosystem.

“The most important change we’ve had in French tech is having a young pro-business president elected,” said Xavier Niel, the billionaire telecoms entrepreneur and investor. “It’s not what he actually changed that mattered the most — it’s the image of France that he completely changed.”

Niel’s comments led to a discussion between attendees, including the inventor of the World Wide Web Sir Tim Berners-Lee, Meta’s chief AI scientist Yann LeCun, Charles Gorintin (co-founder of Mistral) and Jim Breyer, the US billionaire investor, about the power of politicians to shape the image of tech ecosystems for better or worse.

Their conversation left me wondering about the priorities of the next government in the UK. Will the future prime minister be out there shouting that the UK is open for entrepreneurship?

While the UK is still the most vibrant tech ecosystem in Europe, crowns can be lost. Some parts of the country’s policy have gone backwards. Entrepreneurs’ relief has fallen from a lifetime limit of £10mn under Gordon Brown to £1mn, for example. Recent governments have not always had messaging about tech front and centre.

Recently, a senior UK politician told me there were “no votes in tech”. Does this evoke confidence in our country’s future as a global leader in the sector? Pair that with draconian non-domicile changes, proposed increases in tax on private equity carried interest, onerous worker protection laws and a looming clampdown on skilled immigrants and it’s no wonder we are under threat.

Meanwhile, the French are becoming more founder-friendly. They are emulating some of the UK’s pro-entrepreneurship policies, such as the Enterprise Investment Scheme, and going further in other areas. Policies like the “apport-cession” rules allow founders to reinvest their capital tax-free within two years. In addition, the “pacte Dutreil” can reduce inheritance tax on businesses by up to 75 per cent. Holding structures also enable capital protection until dividends are paid out. They are also ahead on pension funds investing in private assets, while their stock market is now positioned to compete with the UK’s. And friendly policies like the “impatriate” tax regime are more attractive than the UK four-year equivalent.

I would love the next UK prime minister to make tech-friendly policy decisions. But just as importantly, I would love them to recognise the huge power of being a champion for the British tech scene on the global stage.

Labour will announce its tech policies soon and I’m hoping they will be bold, long term and not populist. On the Conservative side, Prime Minister Rishi Sunak has been hamstrung by some of the zealots in his party, but he is clearly fluent in technology. He could use this skill to take the UK’s innovators to the next level and turn the country into a global talent magnet. He has already had marked success with the UK AI Summit. Britain’s entrepreneurs have a lot of ideas but the country needs to build a stronger single voice.

London Tech Week takes place this week and we are hosting our annual Founders Forum Global, an event that brings many of the world’s best founders to the UK. It might be an opportunity for French and UK tech communities to deepen their co-operation and partnership. But I hope that politicians from both sides of the aisle will be inspired to think about how to amplify the work of the companies featured.

I consider myself one of the UK’s biggest cheerleaders. As an immigrant who has chosen to live here for more than 45 years, I want to see this country continue to prosper. In my opinion, it is still the best place in Europe to start a technology business. Even so, the winds of change are menacing. We cannot be complacent.

Some analysts say building a new plane soon would help the company regain ground it has lost to Airbus. But doing so would be difficult and expensive.

More than a decade ago, executives at Boeing made a pivotal decision: To keep up with the company’s main rival, Airbus, they gave up on the idea of developing a new airplane and raced to update the 737, the company’s most popular jet.

That effort culminated in the 737 Max, which had two fatal crashes in 2018 and 2019 and attracted more scrutiny this year when a panel blew out of one of the planes during a flight in January. The jet’s troubles have left Boeing behind Airbus in the global market for single-aisle planes, which it once dominated.

Now, Boeing, which is expected to appoint a new chief executive by the end of the year, has to make another critical choice: When should it develop its next brand-new plane?

If the company missteps, it could spend billions of dollars and still lose market share to Airbus, which is based in Toulouse, France. Both manufacturers also face a distant but rising threat from China and growing pressure to cut planet-warming emissions.

“That will be one of the most important decisions for whoever steps into the C.E.O. role,” said Ken Herbert, an aerospace and defense analyst at RBC Capital Markets. “Their legacy is going to be defined by what they do with the portfolio.”

Boeing declined to provide comment for this story.

Commercial planes are generally divided into two groups. Narrow-body, or single-aisle, planes like the 737 typically carry 100 to 200 passengers on domestic U.S. flights. Wide-body, or twin-aisle, planes can take more passengers farther — from, say, New York to London or Tokyo.

Boeing and Airbus sell many more narrow-body jets, but airlines are increasingly demanding larger versions of those planes because of limited gates and runway capacity at many airports and growing demand in travel.

The Max was designed to compete against the Airbus A320neo family of planes. Experts say the verdict in that contest is clear: Boeing lost. Airlines around the world have ordered many more of the Airbus jets, especially the largest, the A321neo. The European company’s lead was solidified after the Max crashes — which experts traced to poor design and engineering decisions — and the ensuing 20-month global ban on the plane.

In 2019, for the first time, Airbus had more passenger planes flying around the planet than Boeing did, according to Cirium, an aviation data provider.

The Max remains popular, especially with airlines in the United States, which have a long history of flying Boeing planes. The company is working to fill about 4,300 orders for the Max, a backlog worth hundreds of billions of dollars. But Airbus has sold far more of the A320neo family, with more than 7,100 outstanding orders for the three variants of that plane.

Boeing still leads when it comes to larger, twin-aisle planes, but Airbus’s dominance in the lucrative single-aisle market could prove self-reinforcing, experts said. With more sales coming in, Airbus can invest more in research and development. With more planes flying, it can earn more from selling spare parts and providing services.

“The entire time Boeing has been running around putting out fires, Airbus has just been running their business,” said Ron Epstein, an aerospace and defense analyst at Bank of America.

Boeing has also squeezed all it can out of the 737, which debuted in the late 1960s. In developing the Max, the company pushed that plane’s structure to its limits. Its next plane is likely to be one that it builds from the ground up, aviation experts said.

It was not clear what that new jet might look like or when it might arrive.

Dave Calhoun, Boeing’s chief executive, has said the company won’t roll out a new plane until the mid-2030s — partly because such a monumental effort would be worthwhile only when companies like General Electric, Rolls-Royce and Pratt & Whitney introduced more efficient engines.

But building a new plane could help Boeing fill an important gap in the market for larger-narrow-body jets, some experts said.

Airbus’s most popular plane, by far, is the A321neo, which has the most seats and can travel the farthest of the company’s three neo models. Boeing’s answer to that plane, the 737 Max 10, does not fly quite as far and has yet to be approved by regulators.

Mr. Epstein of Bank of America estimated last year that Boeing could sell 6,500 larger single-aisle jets to airlines, mostly to replace smaller narrow-body planes. That jet could be developed in seven to eight years for an investment of up to $20 billion, with Boeing generating at least five times as much in gross profits, he said at the time.

Some aviation experts also argue that Boeing and Mr. Calhoun have been too cautious about committing to a new plane, which they said could be more efficient even without waiting for new engines. Newer materials, different kinds of wings and other advancements could help Boeing achieve meaningful improvements, they said.

“If you present the airlines with a reasonably good plane, they’ll take it,” said Michel Merluzeau, an analyst at AIR, an aerospace and defense consulting firm.

The longer Boeing takes to build a new plane, some said, the longer Airbus has to expand its lead. And while new engines promise big gains in efficiency, they may fall short in practice. Airlines may also be slow to buy planes powered by those engines, especially after problems with the current generation’s engines, which have needed more and longer repairs than expected.

But others said it could be wise for Boeing to wait. If the company moves too soon, Airbus could swoop in with an even newer, better aircraft.

Most analysts expect Airbus to release a new plane in the middle of the next decade, around the same time that Mr. Calhoun has targeted. Aviation experts disagree on whether Airbus would move first or wait to follow Boeing, but say the European manufacturer is well positioned for either approach.

Developing a new plane is a huge undertaking. Unlike wide-body planes, narrow-body jets are sold in larger numbers and, thus, need to be churned out rapidly; Boeing and Airbus aim to produce dozens every month. To accommodate that pace, Boeing will have to develop a complex production system and prepare its suppliers. Airlines will also probably have to be willing to train pilots for a new jet, an expensive and time-consuming process.

Ultimately, any new plane will also have to last for decades, Mr. Calhoun said in an interview with Aviation Week, a trade publication, last year.

“Twenty years is a disaster; 30 years is a disaster,” he said. “They’ve got to last 50 years.”

Of course, Boeing would not be starting from scratch. The company and Airbus are constantly developing and issuing new techniques, technologies and tools. Boeing can apply lessons learned elsewhere, for example, from developing the wide-body 787 Dreamliner, which it first delivered to an airline in 2011, or the coming 777X, a more efficient version of an existing wide-body Boeing plane whose wing the company will make in house with composite materials.

The company is also working on experimental technologies. With NASA, Boeing is developing a longer, thinner wing supported by braces, a design known as the Transonic Truss-Braced Wing. It also maintains a research program known as the ecoDemonstrator, which uses modified planes to test new technologies. Both Boeing and Airbus are also separately experimenting with the use of sustainable fuels, which can be made from used cooking oil, waste, corn and other materials.

Aviation experts said building a new plane could generate new enthusiasm for the company after its recent problems.

“If they can make it easier for people to like them, I think they’ll find there is quite a lot of support out there for a new, improved Boeing,” said Rob Stallard, an analyst who covers both Boeing and Airbus at Vertical Research Partners.

Crowdfunded companies pull in cash through sleek social-media promotions and mentions of Elon Musk

Risky startups with a flair for digital marketing are using a regulatory exemption that allows them to hype their moonshot products and raise huge sums of money from individual investors.

Two companies with completely different products—one is designing three-wheel solar cars, the other builds tiny houses that unfold like tents—exemplify this growing segment of the market, known as crowdfunding.

Tens of thousands of small investors have poured $170 million into Aptera Motors and Boxabl, but have little to show for it.

The companies have sometimes misled investors as they burn through tens of millions of dollars, struggle to generate sales, and continue to seek more money, according to people close to the companies, internal documents and whistleblower complaints filed with the Securities and Exchange Commission.

Aptera has been telling investors for three years that it would soon deliver its first solar-powered car but still hasn’t shipped any. Tiny-house maker Boxabl says its wait list exceeds 175,000 customers, but it has sold only six units this year, according to its most recent disclosures.

The SEC approved the exemption nearly a decade ago, as part of an effort to make it easier for smaller companies to raise capital. Known as Regulation A, the technique allows businesses to annually raise as much as $75 million while complying with lighter-touch rules than a traditional initial public offering. These companies have raised billions of dollars from hundreds of thousands of Americans with little oversight.

Aptera and Boxabl have both relied on catchy social-media campaigns that hype their progress creating game-changing technologies. Crowdfunding platforms—such as StartEngine and Republic—match the fledgling firms with novice investors who can behave more like fans than shrewd financiers looking for a solid return on their investment.

Shares bought through crowdfunding platforms aren’t listed on an exchange and don’t freely trade. Investors are locked into their stake unless the company arranges a sale or conducts an IPO.

No cars in sight

Aptera has raised more than $120 million from 17,000 investors since 2021, building a dedicated fan base through videos posted on YouTube and Instagram that tout a three-wheel electric vehicle that it says will eventually have a 1,000-mile range. Tesla’s electric vehicles, by contrast, have a range of between 300 and 350 miles before they need to be recharged.

Aptera, based near San Diego, went bust in 2011 after it ran out of money and failed to qualify for federal loan financing, but crowdfunding gave the company a second life. Its funding haul includes $100 million through Regulation A. Company officials internally have referred to their social-media campaign as “clickbait” because each new video typically brings a flood of new investments.

Though Aptera has pushed back its production date several times, many of its small investors express devotion to the concept.

“Every time I see another video about Aptera the farther I fall in love with this car,” one person wrote on a recent YouTube video. “Aptera really embodies the statement, ‘Do it right, or don’t do it at all.’”

Crowdfunding investors often accept less transparency and fewer rights than professional investors who negotiate stakes in private companies. And they are wagering on companies with little to no record of success.

About 85% of companies that sought capital under the SEC’s Regulation A exemption had either zero profits or negative net income, according to a Wall Street Journal analysis of commission data since 2016, when the financing model was first made available.

“I advise approaching these unproven investments with the same caution as responding to a flashing check-engine light—if you choose to proceed, do so with extreme caution,” said David Krause, a finance professor at Marquette University who has closely studied this market.

Aptera told investors in a July 2023 video that it had validated the aerodynamic design of its three-wheel car at a wind tunnel in Italy. It presented the results as proof of its progress.

But the trip to the wind tunnel was mostly a chance to crank out another advertising video, according to people familiar with the trip.

Aptera spent only a few hours at the tunnel, which wasn’t designed to test three-wheel vehicles such as the Aptera, which is classified as a motorcycle, the people said.

In an interview, Co-Chief Executive Chris Anthony said the company got an invitation on short notice to use the wind tunnel and decided to use the opportunity as best it could.

“We didn’t have time to coordinate with them or talk about, you know, the special needs of a three-wheel vehicle,” Anthony said. “And certainly we didn’t write them a big check, so they didn’t have a lot of incentive to say, ‘Hey, let’s customize the wind tunnel for these guys.’”

“But we got pretty pictures,” he said.

Anthony said in an October video that “the vehicle is ostensibly done,” even though several systems had yet to be built at the time, and the frame was undergoing a major redesign while some parts didn’t have suppliers, according to records viewed by the Journal.

Anthony told the Journal that his description of Aptera’s progress was accurate. Aptera was still sourcing and improving some components and features but “in October we could have built that vehicle,” he said.

Its annual regulatory filings show Aptera burned through about $25 million last year and had $17 million in cash on hand at the end of 2023. The company disclosed a “going concern” warning, which alerts investors that it probably can’t remain in business without raising additional capital.

In a new bid to attract more capital, Aptera said in April that investors who gave at least $2,000 would receive $1,000 off the price of a vehicle when they are delivered. Investors who contribute at least $27,000 would get the first vehicles that are delivered in the United Arab Emirates, where Aptera is trying to raise money and find customers. In a recent video, the company showed an Aptera doing “tons of laps” on a racetrack in Abu Dhabi.

Aptera has lost both of its outside board members in the past year, with the most recent director resigning on May 3.

Three weeks ago, after being contacted by the Journal for this article, Aptera announced it would stop using Regulation A by the end of June. It said it hired a San Francisco-based investment bank, US Capital Global, to help it raise money from wealthy investors.

On May 30, it notified the SEC about its plans to raise $5 million in a smaller crowdfunded round.

Tiny homes that few people want

Las Vegas-based Boxabl has raised $150 million by telling investors that it will automate home-building by cranking out factory-built tiny houses in 15 minutes. The company’s father-and-son management team, Chief Executive Paolo Tiramani and Chief Marketing Officer Galiano Tiramani, say their mission is to churn out 360-square-foot homes that could one day be sold on Amazon.

Four years in, Boxabl has delivered only 223 of the dwellings known as Casitas—most of them through one order to the U.S. government’s naval station in Guantanamo Bay.

The SEC is investigating the company over its disclosures to investors. Its auditor resigned last month after identifying a material weakness in Boxabl’s systems for valuing stock-based compensation and accurately disclosing financial information to investors. Boxabl said it believes the auditor’s concerns were resolved.

Boxabl initially agreed to answer questions for this article but never provided responses.

The company has sought to tie itself to the master of self-promotion on social media: Elon Musk, who confirmed on a 2022 podcast that he has a Boxabl unit in South Texas. Boxabl has opened its doors to YouTube personalities and influencers who visit its Las Vegas factory to make videos with titles like “Inside Elon Musk’s Famous $50,000 Tiny Home.”

The company is storing 325 Casitas valued at about $15.4 million, according to SEC filings. In some states, it still needs permits from regulators to sell the units. It recently started offering them to residents of recreational-vehicle parks.

Wearing a snapback hat and a rolled-up mechanic’s shirt that shows off muscular arms, Paolo Tiramani said on a recent YouTube video that his company’s struggles are due to regulation that is “next level nuts…and it’s mostly the result of unintended do-gooding.”

Eliana Sheriff, a YouTube content creator who made that video and several others focused on Boxabl, said she won’t do more “until they can prove there is something worth covering other than buying a factory a block down the road with nothing in it.”

The potential for quickly producing profitable units was a big selling point to early investors. When Boxabl raised money through crowdfunding for the first time in 2020, it told investors that it would sell units at $50,000 and earn a net profit margin of $20,000, or 40%, on each Casita.

Boxabl lost $40 million last year, according to SEC filings. People close to the company say it expanded too fast, leasing three large factories in Las Vegas before it knew if it could sell units across the country.

Though Boxabl has touted a lengthy wait list of customers, most haven’t put down a deposit. Fewer than 10,300 paid a deposit of between $100 and $49,500, according to records viewed by the Journal.

Despite Boxabl bleeding cash, Paolo and Galiano Tiramani were both awarded bonuses of $297,500 last year, according to SEC filings, or 50% of their annual salaries of $595,000. Their salaries, high for a startup where founders are typically compensated mostly in stock or options, have stirred concerns inside their company.

“This does look like a money grab,” Jennifer Katz, the company’s former vice president of strategic investments, wrote in a text message to another ex-employee that was viewed by the Journal. Katz declined to comment.

Boxabl’s Regulation A share sale generated about $75 million. But Boxabl got only about $65 million of that because Galiano and Paolo Tiramani sold $10 million of their own shares late in the offering process. The company disclosed a valuation of $3.4 billion that year.

Most investors paid 80 cents a share in the offering. But Boxabl offered a limited number at just one penny. The biggest buyer at that discount was Galiano Tiramani’s wife, Shawna Maslak, who acquired 1.9 million shares for $27,000, according to records viewed by the Journal. Boxabl didn’t disclose in its SEC filings that Maslak was eligible to buy at the lowest price.

The company is seeking SEC approval to raise another $75 million through Regulation A. It is offering large discounts on the 80-cent share price, which small investors pay, to entice wealthier investors to contribute $1 billion to build an even larger “Boxzilla” factory.

Boxabl suffered another setback when a Canadian vendor, Brave Control Solutions, that was supposed to deliver $15 million in automation equipment went out of business. Boxabl sued Brave in April, claiming it paid $8 million but never received any equipment.

“It’s sent me down a rabbit hole to find a better way. I think I have,” Galiano Tiramani told investors in a post on Facebook after Brave folded.

“As soon as I’m allowed to I will share some info on the new path I have planned,” he said.