October 10, 2022 – On today’s show, we welcome special guest Dragonfly Energy CEO Denis Phares. Dragonfly Energy is a leader in energy storage and producer of deep cycle lithium-ion storage batteries.
On the show, Denis discusses:
- Advantages of lithium-ion products over lead-acid batteries
- The outlook for lithium carbonate prices
- Key aspects of the business that investors should consider
- His favourite productivity hack
- And more
Welcome investors to The Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies, your hosts, Julian Klymochko, and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate because performance matters. Find out more at accelerateshares.com.
Julian Klymochko: All right, we’re going to be talking about Dragonfly Energy, lithium-ion batteries on today’s show with the Dragonfly CEO Dennis Phares. Dennis calling in from Reno. How are you doing today?
Denis Phares: I’m doing great today. Thanks for having me on show.
Julian Klymochko: Yeah. Excited to get into the details of the business that you founded and now lead, especially on the Phares of all this growth that’s happening there. But prior to getting into that, I just wanted to get you to give us a quick overview of your background, specifically on the entrepreneurship side. I also understand that you were a university professor as well. How did you make that transition?
Denis Phares: Yeah, it’s a pretty long story. I was a professor for about 12 years in engineering. And I had been working on issues related to production of energy devices, solar cells, fuel cells, eventually made my way around to lithium-ion batteries. And through that whole process I was actually developing new technologies for the manufacturing of these devices. Primarily through my focus on fluid mechanics and aerosol mechanics and powder processing and nanotechnology. So, as I was developing new technologies and filing patents, I became a little bit more familiar with the world of starting companies and tech companies in particular. I have a PhD from Cal Tech, and I know a slew of classmates that went that route rather than the academia route. And so, I was also familiar with some successes and some of the pitfalls associated with that.
And ultimately, I guess it came down to my desire to wanting to make a more rapid impact, which I think is easier to do through a company than it is to do through academic research. I think academic research is important but ultimately, it’s an activity that occurs over a much longer time scale. And one thing that I did recognize was I didn’t really know how to run a business [laugh] as an engineering professor. So, when I left academia, I went right to business school to get an executive MBA. And actually, that happened at the same time that I founded Dragonfly Energy. And so, I was developing new technologies, but I also had an eye on the business, and I very much wanted to drive revenue quickly. And you really can’t do that with new technologies. So, as I was working on the research associated with the manufacturing technologies for lithium-ion batteries. Dragonfly Energy went to market with a line of battery packs and marketed and sold these packs with great success, and that really drove the technology. So, I feel like I got, you know, by focusing on the business early on and helping that drive the science, I feel like I got the best of both worlds with that approach.
Michael Kesslering: And when you look at your background with the going through academia and then as you mentioned business school, how would you compare or what do you think some of the advantages to your background versus someone who is at say like a larger tech company and then founded their own business? Is there anything unique that from your experience, that you would point to?
Denis Phares: I think what’s unique for me is, as a professor, I worked on so many different things. I mean, I talk about production of energy device, but I’ve done all kinds of other things, you know, just fundamental fluid mechanics and molecular dynamic simulations and building mass spectrometers and measuring air pollution in the field. I feel like my background had a much wider breadth of experience technology wise. Whereas if you come right out grad school or if you’ve been working in a technology company and you spin out from there, then you really have been focused on one particular area. And for me, the reason I think that’s important is because a lot of progress is really made at the intersection of multiple disciplines. And so, when I applied what I knew in terms of chemistry and aerosol mechanics to the production of lithium-ion batteries, I feel like I was able to look at the problem from a different lens. And I think with that breadth of knowledge, it helps to approach problems with more experience and maybe with a different viewpoint than a more traditional route.
Julian Klymochko: Now looking at Dragonfly products, these lithium-ion battery packs seem to have great product market fit you know, good traction in the market thus far. So, wondering if you could talk about some of the advantages versus led acid batteries and conversely, any challenges in terms of customers making the transition?
Denis Phares: Sure. Well, as I mentioned, we went to market with a line of battery packs that we’re basically bringing in lithium-ion phosphate cells and producing these packs specifically to replace led acid batteries, which is the incumbent technology for a lot of these deep cycle applications, particularly the ones that we’ve gained great traction in RVs and operate solar projects and boats and that sort of thing. And the reason that we were very successful at this is because we knew going into it that led asset batteries were a significant pain point for the consumer for the user of these products. And there’s a couple reasons for that. The most important I think, is they’re just unreliable. Like if you over discharge a led acid battery, you can do great damage to it, and it will never perform the same way again. There are other reasons as well. They just really heavy. Their toxic, you know, you can’t just landfill a led acid battery, not that you can landfill traditional lithium-ion battery, but lithium phosphate at least is far less toxic. There’s no, you know, heavy metals, there’s no corrosiveness, there’s no sulfuric acid in our deep cycle alternatives. So, all these things I think contributed to an environmental benefit. And folks, ultimately, they want to have an environmentally benign solution. And cost wise, over the lifetime of the battery, the lithium alternative lasts so much longer in terms of cycle life. I mean it by comparison, it’s like you never have to replace it. It lasts like 10 times longer. And so even though you pay an upfront penalty, which I would say is the one disadvantage, you’ve got to pay for the battery upfront and you’re paying a premium of, you know, almost double. But because it lasts so much longer, the cost of ownership is a lot less.
Julian Klymochko: So, you have these current lithium-ion products that are performing well in the market. I was wondering, where are you guys investing in for growth in terms of new products and where do you think the industry is heading just in general?
Denis Phares: Well, if you’re talking about the lithium-ion battery industry there’s always new developments that are coming out in terms of new materials, new [Inaudible 00:8:34] the ability to use a lithium metal anode, higher power density. So in terms of the industry itself, it really depends on the application. So, if you look at how we are spending, how we are investing our resources, obviously we’re focused on those industries where led asset batteries are the incumbent deep cycle storage technology. So, beyond RVs and boats you’re looking at things like forklifts and material handling equipment and work trucks and data centers. And there’s basically a market that exceeds $70 dollars billion total annual potential. And so that’s something that, even when you leave out electric vehicles, this is a very important market even before you get to revolutionizing grid storage, which is ultimately what we want to do, there’s a huge market that can benefit from a led asset battery alternative.
And so, we are investing our resources in expanding our footprint to some of these adjacent markets. In terms of what we’re doing technology wise, the focus of our technology is the solvent free production of lithium-ion battery electrodes that has since expanded into the production of an all-solid-state lithium-ion battery. And our focus is unique when you consider the conventional focus or driving force between, behind the development of solid-state batteries, because we’re not trying to make a more energy dense battery, we’re still focused on lithium iron phosphate, we’re still focused on graphite. We’re not trying to make a lithium metal anode. We’re not trying to charge the battery in 15 minutes. We’re not trying to make an electric vehicle battery. What we are trying to do is make a battery that is extremely safe, and by that, I mean non-flammable, that’s why we’re removing the liquid electrolyte, but one that still can last thousands of cycles so that we can have a levelized cost that’s low enough that it makes financial sense to incorporate it onto the grid in much more widespread fashion. The two parameters we’re looking at. Safety and levelized costs very unique for our application. And in my opinion, that’s going to be an important direction that li the lithium-ion battery industry is going, apart from the technology required for electric vehicles.
Julian Klymochko: And if we look at the lithium-ion battery industry from the top down, what’s the competitive environment like? Who are your major competitors and how does Dragonfly differentiate itself?
Denis Phares: Well, given our current market and the size of our potential market in the near term, we still consider led asset the primary competitive technology. So that is still our main vocal point, is displacing led asset. If you’re looking long term, if you look at our desire to really change how we can incorporate renewable energy onto the grid, more solar, more wind, that means a lot more storage on the grid that is sort of the wild west right now, and it’s wide open and there’s no way that a single storage technology is going to be able to accommodate the buffer that the grid needs in order to basically run the future on renewable energy, on solar and wind. And therefore, I don’t see a lot of downstream competition. There’s more upstream competition. By that I mean the competition to acquire the raw materials, primarily the lithium. And so, you know, I do think that that’s something that’s going to become more alleviated as we move forward here in more minds and more discoveries are made. But I think that’s what I would consider the primary competitive force would be the upstream part rather than the downstream consumer part.
Julian Klymochko: And I did want to get other weeds on that one. Specifically, the price of battery grade lithium carbonate has increased dramatically in some forecast that it will continue to do so just with the popularity and growth in electric vehicles. What are your thoughts on the future of this limited resource as batteries become more prevalent in energy infrastructure?
Denis Phares: You’re right that the price of lithium carbonate has gone up dramatically. I think it’s a temporary problem, and it’s a problem not because of the limited supply of lithium, but the limited rate at which we can open lithium mines. So eventually there’s a problem that’s going to be sorted out over the next couple of decades. But there’s been such a rapid growth in terms of not just the opening of lithium mines, but in terms of the discovery of lithium. So, I kind of view this as where oil was early in the nineteen hundreds, you know, first you get the easy-to-get oil and then you move on to the harder to get oil. And I think that’s where we are right now. And there’s certainly new technologies for lithium extraction that are being developed right now. But you know, the easiest to get lithium in terms of lithium binds and evaporation bonds, that’s been ongoing. But there is more and more technology that’s being developed to get lithium out of different sources, clays and rocks. And I think that’s going to continue and we just keep finding more and more deposits globally. But especially in the state of Nevada, which is where Dragonfly energy is, there’s an enormous amount of lithium anywhere where you have these ancient inland seas. Nevada is one of those places and we do have a lot of lithium and accessible lithium in the ground here in Nevada. So, to answer your question, I think there’s going to be a short-term run-on lithium. I think that Dragonfly Energy is one of those companies that is doing our best to secure that lithium in the medium term and ensure that we are going to have a supply of lithium to be able to do what we want to do. But long term, I do think this is going to be a problem that will sort itself out.
Julian Klymochko: And will that specifically affect you guys, like in terms of pricing or manufacturing of your product?
Denis Phares: Well, I mean, to a certain extent. You have to remember that lithium is actually by mass a relatively small portion of a lithium-ion battery. You know, lithium is, I think comprises something like 2% of the math of our lithium-ion pacts, and we don’t have any nickel and cobalt in our batteries, but the price of nickel and cobalt is actually can affect the cost of a pack more dramatically than the cost of lithium can. So at least we don’t have to worry about that. The lithium iron phosphate in particularly is nice because it is cheaper in terms of the other elements and materials that comprise the pack. And I think that even though the cost of lithium is going up primarily for the markets that we are infiltrating now, it’s not going to make it prohibitive in terms of our ability to gain traction in those markets.
Michael Kesslering: And then moving on a go forward basis, can you talk a little bit about some of your plans to achieve production scale?
Denis Phares: Yeah, so you’re talking about the solid-state technology that we are in the process of rolling out. And right now, the timeline is we’re building our pilot plant now barring other logistics issues that have been playing a lot of companies, I believe we’re going to be finishing that pilot plant at some point in the next year. And we should have pouch cells rolling off of that plant solid state pouch cells rolling out off of that plant next year at the point that we basically hit the necessary metrics. And by that, I mean the cyclability then we’re going to move rapidly to a gigafactory scale production facility likely in the five-gigawatt hour. And so, I’d say we are a couple years away from that.
Julian Klymochko: That should be a big one. Gig factories are not small. Now, some exciting news. Recently announced, going public transaction through Spec Charden NextTech Acquisition 2. And if we look at the market, I mean, there are lots of specs out there. What qualities made Charden NextTech stand out specifically?
Denis Phares: Well, first of all, when we were going through the process of first deciding how we were going to go public either through traditional IPO because we are a profitable company, so that was an option for us or going through a SPAC. There were a lot of considerations obviously. And at the time the SPAC made a lot of sense for us in terms of it being a very efficient way to get public in terms of our ability to talk about our new technology. And when we did decide on the SPAC Charden NextTech was enthusiastic, I think they saw a lot of potential in us. And I think because of that, they were very amenable to work with, particularly when it came to trying to navigate the volatile markets as we were going through this deal.
And I think the final deal that we came up with made a lot of sense. I think it worked out well for all stakeholders, and I think it really was the experience that Charden has in terms of closing SPACs. And there was some innovation in terms of how do we get to where we need to get to in such a way that we’re going to be able to continue the business or I should say, accelerate the business in the manner that we had anticipated going into the process. Ultimately, that’s why we’re doing this. We want to roll out the pilot line, we want to expand our core business, and we want to be able to accelerate in a way that we could not do by staying private.
Julian Klymochko: So, when you’re communicating with investors and talking about this deal, what are some of like the key considerations of the transaction that you try to get investors to focus on?
Denis Phares: Well, the key considerations have to do with the uniqueness of the company. I mean, there aren’t a lot of technology companies like us with game changing technology that could revolutionize a very important issue, and that is grid storage that are also profitable now. So we went to market, we have a track record of product development and commercialization of products and profitability. And that’s something that really is unique, but also in terms of the technology are focused on grid storage with a solid-state battery is unique. As I mentioned before, we’re not trying to make a car battery, we’re not trying to make a battery with a lithium metal anode, and that’s why we apply solid state. We’re actually applying solid state to make a non-flammable long lasting battery, and that is unique in the lithium-ion space.
So, I would say that if I were talking to investors, it’s really the uniqueness of this opportunity. The rapid growth that we’ve demonstrated and the ability or the roadmap that we have to continued rapid growth through these existing downstream markets in which the incumbent is led acid batteries, and the long-term play of the addressing the significant grid storage issue, which by the way is going to become increasingly more important when everyone gets an electric vehicle. So, it’s going to stress the grid that much more. So, you know, I think it’s certainly a problem that we’ve addressed in a unique way and it’s just, you know, the opportunities are just endless.
Julian Klymochko: And what’s the solution to that potential future grid problem? Because as you indicated, if everyone gets an electric vehicle, how can things function properly and how will your technology helped with that?
Denis Phares: Well, you need to stabilize the grid, and that can be done by basically building more fossil fuel burning plants, right? Or by putting more renewable energy on the grid. Since everyone’s getting an electric car, the whole goal is to stop burning fossil fuels. So rather than replacing burning fossil fuels in your internal combustion engine with a fossil fuel burning plant, it makes more sense to put more renewable energy on the grid that is more solar and wind in particular. But the problem is those are intermittent sources of energy and therefore require a lot more energy buffering on the grid. And that’s why you need storage, that’s why you need batteries. So, our approach is to make the battery that is energy dense enough and safe enough and inexpensive enough that it could be deployed in every building, in every home. Now, there’s certainly some larger scale storage technologies that can be applied as well. Whether it be graph metric storage or, you know, pump hydro or phase change materials, multi salts. There are all sorts of relatively inexpensive solutions that can and should be applied on the grid as well. But ultimately the solution to this is going to be a lot more grid storage and a lot more renewable energy and electricity generation on the grid
Julian Klymochko: Seems like a much more sustainable future. Now, one last fun question before letting you go, Denis, as a founder, CEO, former professor, what’s your favorite productivity hack and do you have any tips for managing your time effectively?
Denis Phares: Well, that’s an interesting question because it really depends on what I’m doing. As a professor I functioned a lot differently than I do now [laugh]. And by that, I mean I would immerse myself in problems, in specific problems and I would just work until they were done. I was able to focus on one thing for a very, very, very long time. If I were to do that now, then I think that would not be beneficial to the company that I’m trying to run here. And I think now things are a little bit different and I need a lot more help. So, I surround myself with folks that are very competent and are experts in their own in their own skill set, in the field that they’re working in, whether it it’s marketing or finance or engineering or robotics or whatever it is.
And to be able to take a more overarching view on what is going on requires a different skill set that I quite, frankly, had to become accustomed with and to learn. And so now I think it is important for me to have a list of what is going on because there’s so much going on, and to be able to run through that list and meet with the right people and ensure that you know, all the activities that are supposed to be progressing are progressing. So, you know, I was always used to just getting in my own silo and working and shutting my door, and now I’ve got more of an open-door policy, and I like to help out where I can. But I certainly have a lot of help around here in running the show.
Julian Klymochko: Seems like to summarize collaboration would be the key there. Now thanks so much Denis for coming on the show. A lot of good insight into what you’re up to at Dragonfly future opportunity and you really hit the nail on the head in terms of what investors are looking for that’s profitable growth. So, wish you the best of success.
Denis Phares: Thank you so much. I really appreciate this opportunity.
Julian Klymochko: All right, thanks so much. Take care. Bye everybody.
Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.