Why ESS Tech Inventory Slumped Extra Than 11% in November

Why ESS Tech Inventory Slumped Extra Than 11% in November

What happened

ESS Tech (NYSE: GWH) has taken its investors on a roller-coaster ride over the past couple of months. The battery storage company completed its business combination with special purpose acquisition company (SPAC) ACON S2 Acquisition Corp. on Oct. 11, becoming the first publicly traded U.S. long-duration storage company.

Shares skyrocketed immediately following the business combination, rising over 70% by the end of October. However, they cooled off a bit in November, declining by 11.4% for the month, according to data provided by S&P Global Market Intelligence. Among the factors weighing on the stock price was filing a prospectus to sell shares and its first report as a public company.

Wind and solar next to energy storage.

Image source: Getty Images.

So what

ESS Tech filed a prospectus with the Securities and Exchange Commission on Nov. 10 to sell nearly 126 million shares of its common stock, sending shares down more than 10% the next day. The company isn’t directly selling the shares, nor will it receive any cash in the sale. Instead, large shareholders are seeking to sell shares to cash in given the run-up in the stock price following the closing of the business combination.

The sale of shares by large investors is fairly standard practice. They helped fund the company to the point where it could stand on its own in the public markets and now want to see a return of that investment. It’s also worth pointing out that these selling shareholders can’t sell all those shares right now since more than 100 million are subject to lock-up restrictions for a period of 180 days from the business combination. So, this SEC filing paved the way for the eventual sale of some of their shares and wasn’t an actual secondary offering.

The other big news last month was the release of ESS Tech’s third-quarter results, its first as a public company. It didn’t generate any revenue in the quarter since it’s still developing its long-duration energy storage solutions. As a result, it rang up roughly $11 million in operating losses and a total loss of more than $51 million for the quarter. However, thanks to its business combination, it had more than $308 million in cash to continue operating and developing its solutions.

The company noted that it made a lot of progress during the third quarter. In addition to closing its cash-infusing business combination, it secured additional manufacturing space, increased its headcount, and grew its pipeline. That sets it up to start delivering its battery solutions to customers in the future.

Now what

ESS Tech is in the early stages of rolling out long-duration battery storage solutions. It has identified more than $8 billion of opportunities worldwide, up from $7 billion earlier this year. That positions it for significant growth in the coming years. However, despite that promise, it’s a risky bet given that it hasn’t generated any revenue yet, and large investors are eager to cash in on the stock’s October surge. Because of that, shares will likely remain very volatile.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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