An Electrifying Development Expected to Drive Growth

Key Points

  • Aspen Aerogels believes that it is the global leader in aerogel technology with applications in the electric vehicle, sustainable building material, and energy infrastructure markets.
  • Aspen’s aerogel technology platform is proprietary and protected by 145 issued patents, with an additional 114 pending, in US and foreign jurisdictions.
  • Aspen believes it can double its revenues every 24 months, reaching $450 million by 2025 at 40% plus CAGR between 2021 and 2025E. By the end of 2023, it targets $225 million in revenue and a 30% gross margin.
  • To capture the EV market, Aspen has developed PyroThin™ to impede thermal runaway in electric vehicles. It has also developed carbon aerogel battery materials to boost the performance of lithium-ion batteries.
  • The fast-growing EV market is creating new growth drivers for the company, with a combined market opportunity per annum of $67 billion in EV thermal barriers and battery materials.
  • The company has secured a multiyear contract worth a potential $1 billion of revenue this decade with a US auto company to supply thermal runaway material, and the company expects additional OEM wins.
  • Management believes its COVID-19-impacted energy infrastructure business has bottomed and is poised for a recovery principally in the LNG, petrochemical, and refinery markets.

Catalyst Monitor

  • Accelerating thermal barrier revenue in 2021 associated with the launch of 2022 model year EVs.
  • Milestone announcements being made towards commercial launch of its battery materials in 2023.
  • New EV OEM platform wins for the company’s PyroThin™ materials to diversify the customer base.   
  • Additional momentum in energy infrastructure would absorb plant capacity short-term and should improve margins and cash flow. 

Our Insights

The Opportunities

Aspen’s growth has historically been driven by a combination of market share gains and cyclical variances in the energy infrastructure market (over $1 billion installed base) and sustainable building materials ($50 million installed base). Both markets are sizable markets with large total available markets (TAM). However, the company has reached a pivot point where its aerogel technology should be viewed as a broader platform on which new markets and applications can be developed. The historical applications will likely remain a key part of the company’s business, but products serving new, higher-growth applications have been introduced to the market. First, the company has created a modified version of its aerogel insulation materials branded PyroThin™, which is a highly effective thermal barrier used to mitigate thermal runaway in lithium-ion batteries in electric vehicles (EVs). The company estimates this market could be a $30 billion opportunity over the 2020 to 2030 period. Second, the company is developing a battery material technology that can meaningfully improve the performance of lithium-ion batteries, with the potential to be a $37 billion market over the same period. At its core, this product expansion is creating a significant pivot for the company by enabling them to participate in the rapidly growing EV market. As one would expect, the EV market has much higher organic growth potential than the energy infrastructure and building materials markets. Furthermore, PyroThin™ is not simply a novel product or technology searching for a customer. Aspen has already secured a contract from a large US automotive OEM, the name of which has not yet been disclosed, with the potential to generate $1 billion this decade. Management believes this expansion into the thermal runaway application and battery materials will substantially improve the growth prospects over the next decade as they bring on additional customers.

The Obstacles

Although the potential revenue from the initial customer for PyroThin™ thermal barriers is significant, the company will likely need to expand its customer base in this market to reduce its reliance on the success of a single OEM in the EV market.  In addition, given the market size and opportunity, competitive technologies might evolve and increase competitive pressure in the market. Note, also, that if Aspen successfully executes its strategic plan, it will need to expand annual capacity beyond the $200 million available in its East Providence, Rhode Island manufacturing facility. The expansion would present a near-term cash need to fund capital expenditures and would create execution risk related to plant construction. In the short term, the energy infrastructure market will likely account for a significant majority of revenues, so the reversal of current positive cyclical tailwinds is possible.