NASDAQ: GEVO

Gevo, Inc.

Company Overview

Gevo is a next-generation “low-carbon” fuel and chemical company focused on the development and commercialization of renewable alternatives to petroleum-based products. In 2018, Gevo generated $33 million in revenue, with ethanol sales and animal feed products accounting for the bulk of it, at ~96%. The company expects revenues to grow multifold over the next few years ($46- 56M by end of 2021 and $330M to 413M by 2023/24 assuming capacity is in place) as it implements its growth strategy and expands capacity.

Low-carbon fuels reduce the carbon intensity, or the level of greenhouse gas emissions (GHG), compared to standard fossil-based fuels across their lifecycle. Gevo believes the only way to make very low carbon fuels (zero or negative GHG footprint) is to use renewable feedstocks, such as plant matter or “biogenic” raw materials for the carbon source as well as using renewable sources of energy to operate the production facility replacing incumbent fossil fuels based energy sources for electricity and heat. Gevo has already proven that its proprietary process works at commercial scale and as such the company believes it has been de-risked in many aspects and at a key inflection point to move into commercial scale production serving a significant total available market (TAM).

Our Insight

The Opportunities

Gevo has secured a series of off-take agreements that now totals 49 MGPY. This is a critical milestone that puts GEVO in the position to need plants, and those plants will require capital to construct. Project finance is the primary means of financing large production facilities, which is the focus of this Management Series. GEVO is actively engaging potential investors through their banking partner – Citigroup – in a process that started in April 2020. The key takeaway of this is that If GEVO can secure financing, it should be able to move ahead with plant construction. Then the delivery of product and hence revenue, keeping in mind the construction and delivery will take up to two years. Nonetheless, this would be the validation of GEVO’s hydrocarbons as a commercial product and create revenue. We also review the potential for GEVO to invest capital at the plant level to enable shareholders to participate in the IRRs generated by investing at the plant level.

The Obstacles

This is the first plant of this scale and scope that GEVO is looking to build and the capital needed is substantial, at $700mm for all three plants. Project finance investors prefer known technologies and although GEVO has proven it can produce at larger scales, it is still new to the project finance community. This means the company and its investment bank are having to educate potential investors. This can draw out the process relative to what a normal timeline would be. The tendency is that an investor wants to be second, not first, which is typical with any new technology. Without financing, there is no construction.