Even with the recent price fall, RFX still has a market cap of around $180mill. Retail punters (people who read hotcopper and who believe media hype planted by the company) have pushed the share price up from 20c largely on very bullish expectations about residential ZCell sales. These expectations are misplaced. Investors and the media just haven't done their homework on the Zcell. The Zcell, at least in its current design, is likely to be a commercial failure.
According to Redflow and the media (that have been briefed by the company), the ZCell has two key advantages over the competition (Li Ion energy storage systems, mainly the Tesla power wall): Reliability, and cost. But if you scratch the surface, it quickly becomes apparent that the Zcell is significantly less reliable and more expensive than the Powerwall. Here's why:
The operating temp of the electrolyte in the Zcell, is 15-50 degrees Celsius. The company says that the thermal mass of the electrolyte plus the small amount of heat generated by the pump allows the battery to operate for an unspecified period of time below 15 degrees C. However, the fact remains that when the electrolyte hits 13 degrees C, the battery automatically shuts off. Night time temperatures and winter day time temperatures regularly fall below 15 degrees C in all australian cities, except Brisbane and Darwin. When the ambient (air) temperature falls below 15 degrees, the thermal mass of the electrolyte and the miniscule amount of heat generated by the pump will only maintain the operating temperature for a few hours (unless the customer is silly enough to install a Zcell indoors - see below). So, for most of Australia, the Zcell will only work intermittently (i.e., will only work when the ambient temp is above 15 degrees). By contrast, the Powerwall will reliably work between minus 20 and 50 degrees Celsius (that's *minus* 20). So the powerwall, and other li ion competitors, reliably work everywhere in Australia.
The company is vague about the temperature problem on its website. This could be because they don't want potential customers thinking about it too much, or it could be because they don't really know (yet) how many hours the Zcell can reliably work once the ambient temp falls below 15 degrees C. Customers forking out $19,500 for the first batch of Zcells are probably financing the company's R&D to discover how many hours the Zcell will continue operating for below 15 degrees Celsius.
The only way for Redflow to overcome this design flaw is to go back to the drawing board and install a heater (most other outdoor rated storage devices have an internal heater). This will likely add another $1-2k to the retail cost of the Zcell, but it is the only way this thing is going to reliably work in Australia.
It is also not generally known that the Zcell occasionally vents toxic hydrogen and bromine gas (albeit in small quantities). The powerwall never vents toxic gases. When inhaled in sufficient quantities, bromine gas can be lethal. When potential customers find this out, I don't see them buying a Zcell. What parent in their right mind is going to install a Zcell anywhere near their house if there is a risk of toxic gas emission??? This fact also detracts from any feel good environmental benefits. No environmentalist that I know wants own an energy storage device that may occasionally emit toxic gases, especially when there are other technologies available that emit no toxic gases. Just to be clear, the company says that the Zcell shouldn't release toxic gases under normal operations, but the company cannot guarantee that it wont vent gases occasionally under normal operating conditions. Obviously, if the electrolyte tank is punctured (perhaps by reversing a car into it), it creates very dangerous conditions for the owners of the Zcell.
The upshot of the above is that the Zcell is not really 'market ready'. In order to sell this product to anyone other than a few naive shareholders with money to burn, Redflow will need to redesign it so that it reliablly works all year round in all Australian climates and that they can gurantee that it will not occasionally vent toxic gases. Without solving these two key design failings, sales are going to be very small indeed.
Many hotcopper punters and the media have also made a big deal that the Zcell is cheaper than the powerwall on warranted/kwh basis. This is no longer true. If you call the cheapest installer, you will discover that the retail price for the powerwall has fallen by $1500 over recent months to $10k fully installed (with a battery inverter). The powerwall has a warranty on 16025 kwh, which gives it a warranted cost/kwh of 62c. By contrast, the Zcell has a warranty of 30,000 kWh, with an upfront cost (excluding the heater I think it will need) of $19,500. This gives it a warranted cost of 65c/kwh. So, the Powerwall is now half the price of the Zcell on an upfront basis, and 3c cheaper than the Zcell on a warrented kwh basis. Again, who in their right mind is going to buy a Zcell?
Redflow shareholders probably are also unaware that once the new Nevada Gigafactory is at full production (for the powerwall), the powerwall will fall in price by another 30%. So, assuming the Zcell does finally get to market next year, it will soon be competing with a $7k Powerwall (=43c warranted kwh). At this level the Powerwall will actually begin to save the customer money. By contrast, Redflow will need massive economies of scale to bring the Zcell price below $19,500. I think only a handful of Zcells will sell in the foreseeable future, and so don't see any economies of scale anytime soon.
In summary, because the Zcell only reliably works when the ambient temp is above 15 degrees C, because it occasionally vents small quantities of toxic gases (or at least the company cannot say that it wont do this), and because it is so ridiculously expensive relative to the competition, I don't see Zcell selling many units (despite the expressions of interest from shareholders and posters on hotcopper).
If Redflow can't show meaningful Zcell sales next quarter, I think the shareprice will quickly retrace to around 18c. At 18c, RFX still has a market cap of around $72mill, and an EV of around $50mill (assuming $12mill in cash). Without signficant sales, Redflow only has 12 months left of cash, and not enough to redesign the powerwall to fix the issues I spoke about. Absent significant Zcell sales, another $12mill capital raising next year will probably be required to keep this company going. The company has been telling investors it is close to significant commercial sales for around 5 years now. At some point, investors will stop believing this. This company is more vulnerable than most punters realise and I think the share price risk is definitely to the downside.
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