Romeo Power Stock: After 90% Drop, Outlook for EV Penny Stock Is Solid

Romeo Power Inc Bullish on Expanded Opportunities

The shine that sent electric vehicle (EV) stocks soaring in 2020 has waned (for the most part) since the start of 2021. The EV industry got a boost in November 2021 after President Joe Biden introduced a $1.2-trillion infrastructure bill that promised $7.5 billion to accelerate EV adoption. The thrill from that has cooled, too.

It doesn’t help that rising interest rates are a millstone for growth stocks, whose valuations are based—in large part—on companies’ future cash flows. If a company has a wonderful concept but no income, nor the promise of future cash flow, its valuation will come down.

And down they have gone. On a year-over-year basis, the Nasdaq is in bear-market territory, down by 12.5%. On a year-to-date basis, it’s down by 23.2%.

The sell-off has taken many great EV stocks down for the ride. One such stock is Romeo Power Inc (NYSE:RMO).

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In late December 2020, just before investors became nervous about the prospect of rising interest rates and just before the company went public through a special purpose acquisition company (SPAC) merger with RMG Acquisition Corp., optimistic investors sent the RMO stock to hit an all-time high of $38.90.

Those were gentler times.

For buy-and-hold investors, it’s been a rocky ride. Currently trading at $0.86 per share, Romeo Power stock has lost a whopping 99% of its value since late 2021. As of this writing, RMO stock is down by:

  • 23% over the last month
  • 53% over the last three months
  • 79% over the last six months
  • 76% year-to-date
  • 90% year-over-year

Chart courtesy of StockCharts.com

That’s not exactly ideal for risk-averse investors, but there’s every reason to believe Romeo Power stock could rebound. There aren’t analysts following Romeo Power Inc, but their median 12-month target for RMO stock is $1.80, pointing to potential gains of approximately 110%.

About RMO Stock

There are more than enough reasons to be optimistic about Romeo Power Inc. A manufacturer of lithium-ion battery modules and packs for a growing variety of EVs, the company has, in just a few years, gone from being a concept to being a revenue-generating company. (Source: “Q1’22 Earnings Presentation,” Romeo Power Inc, May 9, 2022.)

The company is primarily focused on marketing mobility-energy technology for medium- and heavy-duty commercial vehicles in Classes 4 to 8.

Romeo Power Inc’s products include the “Banyan Module” and the “Menara Battery Pack Series.” Banyan is a modular building block consisting of lithium-ion cells. Menara is capable of powering a range of commercial vehicles spanning from Class 3 delivery vehicles to Class 8 vehicles.

In April 2021, Romeo Power Inc announced a long-term supply agreement with PACCAR Inc (NASDAQ:PCAR) for Peterbilt EVs in the U.S. and Canada through 2025. Production is slated to begin in 2022.

Potential Growth Drivers

New Collaboration

In September 2021, Romeo announced a collaboration with battery sensor company Dynexus Technology Inc. (Source: “Romeo Power and Dynexus Technology Collaborate to Introduce Advanced Battery Sensing and Diagnostics for Battery-Electric Commercial Vehicles,” Romeo Power Inc, September 14, 2021.)

Romeo Power will integrate Dynexus’ sensors into its battery ecosystem. This will provide a new class of battery data that, until now, was only available for research purposes and wasn’t practical as a commercial tool.

Dynexus’ sensors enable certain measurements, which typically take 30 minutes, to be done in 10 seconds or less. As a result, they provide Romeo Power with significant commercial opportunities.

Expansion of Operations

In October 2021, to meet increased demand for its EV batteries, Romeo Power signed a lease for a 215,000-square-foot facility (equal to 3.8 NFL football fields) in Southern California. (Source: “Romeo Power Signs Lease for 215,000 Square Foot State-of-the-Art Facility in Southern California,” Romeo Power Inc, October 4, 2021.)

The new facility will support Romeo Power’s expansion of battery development and testing capabilities adjacent to its production line, allowing for faster innovation and time to market.

The facility includes 191,000 square feet of industrial space that will be designed to double critical laboratory and testing capacity. The transition to the new facility is expected to be completed by the third quarter of 2022. Additional production equipment is expected to help Romeo Power Inc ramp up its operations in the first quarter of 2023.

Acquisition of Joint Venture

Perhaps most significantly, in February 2022, Romeo Power completed its previously announced acquisition from BorgWarner Inc. (NYSE:BWA) of its interest in their joint venture for $28.6 million in cash. (Source: “Romeo Power Completes Acquisition of Joint Venture Interest From BorgWarner,” Romeo Power Inc, February 7, 2022.)

Acquiring the joint venture frees up restrictions that had previously limited the scope of the company’s commercial activities. Romeo Power Inc is now able to commercialize its products worldwide for use beyond specific classes of heavy-duty commercial vehicles.

Partnership With Electric Bus & Truck Manufacturer

In March 2022, Romeo Power announced that it had forged a relationship with bus and heavy-duty truck EV powertrain manufacturer Wrightspeed Inc. to build “Powertrain in a Crate” kits, using Romeo Power’s high-capacity battery pack and module technology. (Source: “Romeo Power and Wrightspeed Announce ‘Powertrain in a Crate’ to Safely Repower School Buses, Transit Buses and Certain Medium and Heavy Duty Trucks Into Zero Emission Electric Vehicles,” Romeo Power Inc, March 11, 2022.)

According to Romeo Power, there are more than a million existing buses and trucks that are candidates for retrofitting as zero-emission, full-battery EVs—at a much lower upfront cost than purchasing expensive new EVs.

Production is scheduled to begin later in 2022.

Sole Provider of Lithium-Ion Batteries for Next-Gen EVs

On May 6, Romeo Power Inc announced that it was selected by a U.S. manufacturer of low-speed electric vehicles (LSEVs) to be the sole provider of lithium-ion batteries for the manufacturer’s next-generation vehicle. (Source: “Romeo Power Selected by Key Customer as Sole Provider of Lithium-Ion Batteries for Next Gen Electric Vehicle,” Romeo Power Inc, May 6, 2022.)

Romeo Power says the LSEVs are “affordable, road-ready transportation options for food, packages and other resources, and are also ideal for campus mobility and last-mile distribution applications.” (Source: Ibid.)

Supplier of Batteries to Leader in Powertrain Products

In late May, Romeo Power announced that it was selected to supply batteries to a leader in aftermarket powertrain performance products. (Source: “Romeo Power Supplies Batteries to Leader in Powertrain Performance Products,” Romeo Power Inc, May 26, 2022.)

Susan Brennan, Romeo Power’s CEO, noted, “We are pleased to supply Romeo batteries to an established provider of aftermarket solutions, marking another encouraging step that supports our growth trajectory.” (Source: Ibid.)

She added, “Selling into aftermarket solutions fits into our commercial strategy to support vehicle electrification at all stages of a vehicle’s lifecycle and serves as a solid indicator of our efforts to expand the application of our leading technology into the growing spectrum of vehicle electrification opportunities.”

Strong First-Quarter Results

For the first quarter of 2022, ended March 31, Romeo Power Inc reported revenue of $11.6 million, which was in line with projections. The revenue growth was supported by a $10.8-million year-over-year increase in product revenue and increased delivery levels. (Source “Romeo Power Reports First Quarter 2022 Financial Results,” Romeo Power Inc, May 9, 2022.)

During the first quarter, the company continued to expand the scope of its total addressable market and improved its fixed-cost leverage and manufacturing scale as its production volume increased.

Also during the first quarter of 2022, Romeo Power Inc accelerated its growth and commercialization by increasing its average daily production rates by up to 75% from the fourth quarter of 2021. The company also added a third shift to its facility in Vernon, CA to help meet its $412.0-million backlog.

Other Recent Business Updates

In addition to the potential growth drivers mentioned above, Romeo Power Inc recently announced the following developments:

  • It has been pursuing a broad range of potential customer relationships in previously untapped markets
  • It shipped its first pedigree packs to a key customer that manufactures heavy-duty commercial EVs
  • It was awarded the first phase of a multi-phase commercial program with Indigo Technologies, an automotive original equipment manufacturer (OEM) specializing in lightweight EVs
  • It announced a three-year extension of an existing supply agreement with one of its long-standing customers, with a minimum contractual commitment valued at approximately $17.0 million

Analyst Take

The EV sector might be taking a hit these days, but that doesn’t mean every company in the industry deserves to see its share price suffer. Romeo Power Inc is an excellent company that continues to take major steps to make it a leader in lithium batteries for EVs.

In the first quarter of 2022, the company continued the momentum that it had started in the second half of 2021. It accelerated its commercial production ramp and significantly increased its daily production rates.

Romeo Power Inc finalized a multi-year supply agreement extension and enhancement with a leading commercial vehicle customer, entered a new multi-phase commercial program with an automotive OEM, and began shipping its first pedigree packs to a key customer that manufactures heavy-duty EVs.

For Romeo Power stockholders, 2021 wasn’t exactly one for celebration, but according to the company’s CEO, 2022 “will be a transformative year.”