Dragonfly Energy Is Seizing A Lucrative Niche EV And Lithium-Ion Energy Market Opportunity ($DFLI)

Global electrification is a movement doing more than changing an energy landscape; it's exposing lucrative revenue-generating propositions for companies positioned to capitalize on the inherent opportunities. Dragonfly Energy (NASDAQ: DFLI) is on that list. More importantly to its growth, it's a short list that DFLI is high on by capitalizing on a massive niche EV sector opportunity- making powerful lithium-ion batteries more accessible to recreational vehicle owners, especially those wanting off-grid experiences. 

Earning its leadership position in that market does more than put a lucrative market into play; it separates them from the growing pack of EV car companies like Tesla (NASDAQ: TSLA), Ford (NYSE: F), and General Motors (NYSE: GM), where competitive pressures are squeezing margins as demand for lower priced vehicles gets stronger. In other words, any weakness in DFLI share prices as part of broader EV sector weakness could expose an opportunity worth seizing. Often, sector sentiment takes all companies in the space lower, even if market news isn't necessarily relevant to a particular company.

Still, that's sometimes good news. Valuation disconnects present investment opportunities, and investors are seizing the one in play from DFLI. Ahead of the close of a holiday-shortened week, DFLI shares are higher by over 13% for the week. Notably, TSLA shares are lower by 3% simultaneously, showing that investors may be taking advantage of overdone selling in DFLI shares last week. It's a trend that should continue. (*share price of $3.40 on 04/06/23, Yahoo! Finance, 10:09 AM EST)

Seizing Its Opportunities In A Massive RV Market

Deservedly so. Dragonfly has been creating value for over a decade by developing intellectual property focused on Lithium-ion cell manufacturing. They've grown considerably over that time, revolutionizing an industry by making lithium-ion batteries more accessible for RVers. That focus and the success from it shows. In addition to increasing its market share within the RV, marine, and off-grid solar sectors, it generated over $86 million in sales last year. There's more good news. 2022 revenues marked its fifth consecutive year of revenue growth, impressive since DFLI only started shipping products in 2017.

More excellent from a company and investor's perspective is that the streak is expected to continue. Dragonfly has guided for more growth this year by maximizing inherent strength from being a more comprehensive lithium-ion battery technology company today than ever. While the bullish sentiment is alive in 2023, the better news is that it's likely to continue well past. In fact, given that operations expanded to developing cell manufacturing processes, designing and assembling battery packs, integrating these packs and other innovative ancillary components into complete energy storage systems, and selling these systems into diverse consumer and industrial market channels, that's more than a likely proposition, it's a probable one.

Providing Best-In-Class, Disruptive Energy Sources

Marketing disruptive technology often has that effect, something Dragonfly has by challenging the traditional approach of powering RV, marine, and off-grid markets that have relied on lead-acid batteries. It's a timely opportunity. Lead is toxic and remains a significant environmental problem, a compelling reason target markets have been receptive to Dragonfly's technology. And they should be; it supports a global effort and mission to convert to green, renewable energy. Moreover, unlike competing lead-acid alternatives, Dragonfly and its branded Battle Born batteries are environmentally safer, provide 2-3 times more power, last over ten times longer, are one-fifth the weight, charge faster, and require no maintenance. That's game-changing.

As important, they are selling. DFLI markets its deep-cycle lithium-ion batteries under two brands, Dragonfly and Battle Born. The Dragonfly Energy brand serves its Original Equipment Manufacturing (OEM) customers and partners, including the industry-leading THOR family of recreational vehicles. The second is its direct-to-consumer retail brand, 'Battle Born Batteries,' named after the battle-born state of Nevada, where Dragonfly is headquartered. But batteries aren't the only value drivers. Additional income is generated from being designers and resellers of accessories, effectively making DFLI a total system integrator for its customers. 

That value was enhanced after acquiring Wakespeed Offshore in 2022. It facilitated Dragonfly to better integrate its storage systems with vehicle engines and alternators. Combined with battery pack monitoring and communication innovations, it sets the 2023 stage for DFLI to capitalize on revenue-generating opportunities presented by larger stationary storage applications. It's made DFLI a bigger company faster than many may have expected.

Today, Dragonfly is recognized as an expert in lithium-ion batteries and entire lithium battery storage systems. That's earned value from having a robust patent portfolio continually strengthened by innovation, including Dragonfly's dry powder coating cell manufacturing technology and non-flammable battery technology. Production of the cell pilot line for that technology is in progress, with plans to monetize cell manufacturing in the United States next year.

Guidance Calls For Accelerating Revenue Growth

Sales from its growing asset portfolio are expected to add appreciably to 2023 revenue streams. Recently, DFLI announced posting Q4 2022 net sales of $20.2 million. A change in product mix sales kept that revenue in check compared to last year's period. However, the 15% increase to same period battery unit sales is expected to become more accretive in the coming quarters as DFLI adjusts to the mix shift toward OEMs, which accounted for 45% of revenue in the period compared to just 15% of revenue in the fourth quarter of 2021. The growth in DFLI's OEM business is primarily the result of increased demand from its partners to include its battery solutions on their products at the manufacturer rather than having the consumer choose to add them in the after-market.

The company expects that trend to continue. And by managing tighter margins, OEM sales can be a significant and profitable growth driver this year. So can its Direct to Consumer business, which, despite macro pressures such as rising interest rates and inflation, is expected to contribute more this year as markets stabilize to a new normal. Remember, DFLI's target markets saw unprecedented growth during the pandemic years. Hence, keeping pace with historical demand is a tough comparison to measure against.

Still, adjusting to market conditions should allow revenues to fall faster to the bottom line. From a channel perspective, Dragonfly's OEM segment grew by more than 300% YoY, representing approximately 39% of total sales, compared to roughly 11% in 2021. As noted, OEM growth was primarily the result of increased adoption of its products by new and existing customers, several of whom have begun to "design in" DFLI batteries as original equipment in various RV models. Others have increased purchases in response to end-customer demand for safer, more efficient batteries and as a replacement for traditional lead acid batteries.

A Rally Cry For Dragonfly 

Most important to the DFLI value proposition is that combined revenue contributions from its segments are expected to deliver significant growth this year. Management forecasts for Q1/2023 revenue to range between $17.0 - $19.0 million. Lower overhead is expected to increase margins, though not appreciably. However, the bullish trajectory in revenues and margin curves is anticipated to steepen as the year progresses, benefiting from the market strength inherent to its OEM business. That's led DFLI to forecast net sales between $112 to $122 million, or 36% year-over-year growth at the mid-point of the range.

Notably, growth is expected despite likely consumer spending challenges. In other words, DFLI, knowing the markets, is still bullish about 2023. More importantly, and the reason for investors to pay attention to the DFLI value proposition at current levels, is that DFLI expects to return to being net income positive in the second half of the year. Thus, any share price weakness could expose an even more significant disconnect between intrinsic, inherent, and guided value, a gap investors may want to seize sooner than later.

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