VIDEO: Eguana Technologies (CVE:EGT) CEO competing with TESLA Inc (NASDAQ:TSLA)

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Eguana Technologies (CVE:EGT) (OTCMKTS:EGTYF) (FRA:S2K1) manufacture and supply power controls for solar self-consumption, grid services, and demand charge applications at the grid edge.  Their CEO Justin Holland highlights the increasing trend towards residential adoption of their high performance energy storage systems. Their recent Mercedes-Benz Energy endorsement and cost advantages over TESLA, Inc (NASDAQ:TSLA) (ETR:TL0) (SWX:TSLA) (FRA:TL0) competing powerwall products are also discussed.

TRANSCRIPT:

James West:  Hey there. Welcome back, thanks for joining us! My guest in this segment is Justin Holland. He’s the CEO of Eguana Technologies, trading on the TSX Venture under the symbol EGT. Justin, it has been a while; welcome back.

Justin Holland:          Great to be here, James. Happy to be with you.

James West:    Yeah. So let’s see: we started covering Eguana Technologies back in 2014?

Justin Holland:     It’s been a while.

James West:    It’s been a while, and so we’ve had a ringside seat over the rather impressive arc of your development. Why don’t we start with an update of what’s happened in the last 12 months that’s really taken you to a new level.

Justin Holland:     Quite a bit, actually, James. Back when you started covering us, we were more going for the power controls inside energy storage systems, and as we went through the sector in the different regions, we saw there was little core competency for people to do that full integration; it’s technologically difficult, and a core competency that we had in-house. So across that time frame, we’ve actually migrated the strategy to produce fully integrated and factory-assembled storage appliances. So, you get the EMS, the power controls, the full integration to the battery, all in one box coming out of the factory, which is a little bit different in the industry that was primarily driven by an inverter with a battery and an EMS.

And if you think about an installer perspective, you can either install one box or you can install several boxes. So we paid a lot of attention over the years as to how we could simplify the approach, maintain the core values of the company, and have a better product at the end of the day, which is, I think, where we are now.

James West:    Sure. One of your key relationships is with LG Chem. And you’ve made some incredible inroads with them, where they’ve actually really embraced your technology and have started to ship original equipment manufacturer products with your stuff pre-installed?

Justin Holland:     Great relationship. Obviously as a small Canadian tech company, it was a critical one for us. We saw that battery supply was going to be, you know, a deciding factor in the home storage sector, and we could see that, with the electrical vehicle movement, that you really want to have a robust supply chain for that. We went through longstanding tests with LG; several of the development team have been to Korea, we worked directly with the team there, and we were actually the first to integrate their module into a fully integrated system. So, great relationship; they’re very supportive of us. They actually look at our product as kind of the large, modular LG product. They have their own standing product, which is an LG RESU. It’s a DC-coupled product that goes to 10 kilowatt hours. Our product, which we’ve done in a modular fashion, goes from 13 kilowatts all the way up to 39, so a lot of support from LG. We know them well, and we look forward to continuing that relationship.

James West:    You bet. The sales and demand sort of picture over the last three years has improved dramatically, as well as adoption of storage systems for solar at home levels is really starting to improve globally, isn’t it?

Justin Holland:     We’re seeing a significant tipping point right now, and as I explained it to some of the people that I’ve been talking with, up until this point, you’ve seen the manufacturers push the product into the market, and depending on which market you were in, it was either a self-consumption-type market like Europe, where you’ve got a high power price, or a grid services type market in the US, where it was bound by regulatory constraints and change.

But what we’re seeing now is a market pull, creating somewhat of a vacuum out there for certified energy storage products. We think we’ve hit that timing very well; we’ve just launched the commercial, small commercial industrial product in March. We launched the fully assembled product for Australia and North America in March, and just recently, at the InterSolar show in Germany, we launched the European-specific product. So, all three products are now in the market; they’re certified and rolling out through distribution, at a time where we see the change in the market from a manufacturing push to a market pull. So, very good timing.

James West:    Great. And during our last conversation, we talked about how, you know, you are competing, essentially, in many respects, with Tesla, and that in many respects, you have a superior product which is recognized within the industry. So what are the elements or your product relative to Tesla’s Powerwall, for example, that make the Eguana system superior?

Justin Holland:     I would say that the first thing right now, and something that we focus on the supply chain aspect, and it sounds simple enough, but it’s availability. And there’s a worldwide shortage on the power wall, and the rest of the competitors are focusing on availability.

Outside of that, Tesla came out of the gate with a very low price point on the product; most of the other manufacturers did not follow suit on that price point. Where we were able to compete directly on that is large system sizes. Large system sizes are what you typically see in Australia and the North American market, and where we get a cost advantage over a power wall is in the power electronics topology. We’ve got a modular system where you can put one power control system installed, and then you can add battery modules to it. So, if you wanted to go from, say, a 13 kilowatt hour system to a 26 kilowatt hour system on an evolved product, which is our fully integrated product, you just add the battery modules.

In Tesla’s case, you would have to add a full second power wall. So as systems size go up, the fact that you only have to add battery capacity on an Eguana system gives you a cost advantage over the power wall. And then you look at installation flexibility; power wall has certain challenges in different regions due to its size, where our modular approach also lets you have a lot more flexibility there.

A lot of markets, they will have the same function, but we’ve got a lot more flexibility. We can take a cost advantage, and then just the general product availability against the power wall.

James West:    Mm-hmm. So, scalability and availability.

Justin Holland:     That’s very well put. Absolutely right.

James West:    I like to rhyme things so I can remember them.

Justin Holland:     Yes, I’ll take that one from you.

James West:    Okay, so what does your sales picture look like for the next 12 months going out, and what’s the sort of gross margin on that?

Justin Holland:     It’s looking very good, and we just announced a press release last week where our longstanding partner, Mercedes-Benz Energy, we’ve come out now publicly that they were, in fact, our German automotive partner. They’ve done extensive testing on our product, and we’ve got the endorsement from them; it was a long road to get there, but we were able to execute and finish that. What they’ve also done for us is, their sales team worked with us to do the introduction and the conversion of their distribution pipeline. So, outside of North America, we are running through distribution, and in the last several weeks we’ve added distributors in Europe, Turkey, Middle East, Australia, and it’s due to that relationship and having that endorsement with Mercedes-Benz.

And, you know, from the company perspective, we identified a couple of years ago who we thought would be the leadership groups at this point in the market. We had identified power wall, as we mentioned, but we also identified LG Chem and Mercedes-Benz Energy as the top tier. And our objective at that time was to work with one or multiple players that we considered top tier. Today, I’m happy to say that we do have the backing of LG and now we have the formal endorsement of Mercedes-Benz. So we identified two of the three, and actually have done very well with two of them. So the distribution rollout is going well; the revenues will scale drastically in the fourth quarter, and the margins that we’re looking at are, for our industry, very healthy, and they’re right now sitting in the mid-20 percent range.

So margins look good, the rollout looks good, and we certainly have the two big partners backing the product.

James West:    Sure. Just a sort of tangential question: it strikes me as potentially opportunistic for LG Chem to acquire you outright, and if you’re already embedding their modules in your systems, at what point does it make more sense for Eguana Tech to be an LG Chem subsidiary?

Justin Holland:     We’ve kicked that around, obviously. The battery guys are more focused on the batteries, and I think it’s important to understand that the electric vehicle market does take a lot more of the batteries. We had approached LG at one point to look at integrating a full system with them; they’re not really structured to manage that type of a global business, so I don’t see them as a potential acquirer. I think what you’ll see with the battery players is, they’re going to continue to advance the battery technology and focus mainly on the batteries, and primarily on the EV space, which is why it’s critical to have your supply chain locked down on the residential stationary piece so that you always have access to the batteries.

But I don’t see them as a candidate for Eguana.

James West:    Okay. What about Eguana acquiring LG Chem? [laughter]

Justin Holland:     Agreed.

James West:    That makes more sense to me.

Justin Holland:     We’ll talk that one through with the shareholders and see what we get.

James West:    Right. Okay, so finally, what does the outlook for 2018 look like? What are the catalysts in terms of value for the shareholders?

Justin Holland:     We were rebounding and rebuilding in 2016, 2017; I think our shareholders, which, good group of shareholders that have been with us a long time understood that. We’ve already increased our revenue in 2018 from 700,000 to about 2.6 million. We expect that to double within the rest of the fiscal year, and then we should continue to see that growth as the products roll out in the fourth calendar quarter and into 2019.

James West:    Wow.

Justin Holland:     Yeah, it’s, the help from our two partners has been tremendous, and now we have products selling and rolling out right across our target jurisdictions, which were Australia, Europe, and of course, North America.

James West:    Wow. Great, Justin. Let’s leave it there for now. We’ll come back to you in a quarter’s time and catch up with you, see how you’re doing. Thanks very much for your time today.

Justin Holland:     Thanks, James. I look forward to it. Take care.

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