Gevo; Hard YES for Mother Earth Champions and Green ChemistsDISCLAIMER
This is in no way, shape or form, fluid and function, an analytical, qualitative or intelligent compte rendu. I am obviously not rich, so obviously I haven't made it with my own thinking, so definitely don't put faith in me. But maybe read and learn some things about a company that might just revolutionize the world in a greener way than we thought possible within a 5-10 year span.
Thesis
If the stock market has 2 functions, for price discovery, and capitol allotment; certainly it is upon the second that I must plead Gevo's case. In the short term, Gevo has some major projects under development, already bought and paid for, and with net revenue on the way. Long term, Gevo has the solution to the global carbon crisis, aka THE CRISIS. Sitting at an unreasonably undervalued low, and with greener pastures on the horizon, Gevo doesn't just seem like the feel good buy, but the eat good buy. If you want to read unbiased work, skip this section, because I have nothing but praise for Gevo. I cannot put a finger to one bad element, or one thing that makes me hesitate on this rating. I must reiterate that this is not financial advice, because this advice will not be given with finances as the primary argument. I want to believe that Gevo can achieve carbon negative life cycles for internal combustion engines for planes, boats and cars; I want to believe we can save as much of Mother Earth as possible. So, for one final time, I am reiterating, do not read the rest of this if you want to maintain some semblance of an unbiased approach towards this company, because I believe Gevo is going to be a huge part in the future of carbon negative.
Led by a scientist, and surrounded by scientists, Gevo is making more strides in the carbon neutral world than most would expect, especially from the outside. Gevo has partnered itself with agriculture, a necessary feature given their pipeline requires green biomass waste, but Gevo hasn't just partnered with them. They are trying to become a hero for them? Gevo is working hard to solidify relationships to sustain the pure amount of inedible vegetation they are going to need to make enough isobutanol for their pipeline to become actualized. Part of that is just good business sense, but part of it feels like a little more. Reading into Gevo's white papers, and their current strategies with making a high protein-low starch inexpensive animal feed, working with farmers to recycle manure into GHG (making $$$) but also offering them cheap, organic fertilizer in return. Gevo doesn't feel like an Isobutanol company, which is what some might have you think. Gevo is an analytical platform company focused on creating a carbon negative life cycle for every process they can manage.
If Fusion is the ultimate goal, electric/wind/hydro is the long & medium goal, what's the short? And what about the places where solar/wind/hydro are a far ways away, like massive cargo ships, jet planes, and a massive fleet of internal combustion engines across the world that is not going anywhere anytime soon. Enter Gevo, providing carbon neutral & biosynthesized jet fuel, car fuel, diesel and natural gas. Gevo is best positioned for a removal of the gasoline price subsidy from the Federal government, and the deal gets sweeter every cent Gevo can remove from their manufacturing costs, combined with possible Democratic congressional aid (Biden's infrastructure plan would go a long way in making a bunch of NetZero sites). On top of that, with more assets on hand, patents, proprietary methods, tech, partnerships in India, Japan and across the US; Gevo is positioned to sustainably rocket forward through the next few years without any external support.
In summary, the company is led by scientists, driven by science under the pledge of achieving carbon negative life cycles of important chemicals, such as gasoline and jet fuel, all to help humankind and Mother Earth. At least that is the hope. With a lot of projects underway to prove they can commercialize, there is a lot of pressure on Gevo to perform perfectly. While I don't personally stress the need for them to meet or beat deadlines or costs, seeing how they deal with the various hurdles ahead is what is most important. Investing now is a long bet on a long call, but keeping an eye on Gevo could be worth the time.
Products
These are the products they currently can make, as in have setup and ran small-scale industrial factories for production of:
Isobutanol; various estimates expect this market to be up to $1.1 billion market by 2025-2027. An estimate from 2016 had it $1.4b by nowish, so this market isn't as realized, nor as predictable as previously thought. Isobutanol isn't just great for making explosions, it can also be used to make some plastics, especially some "greener" plastics. Isobutanol as a whole is amazingly reactive, and with reactive chemistry likely to explode in the future as next gen computational models come out (as has happened in the past with the field), Isobutanol sits at a great place for future R&D into further manufacturing. The biggest problem is pipeline. Getting isobutanol places can be tricky, and if Gevo doesn't create an "organic" pipeline for their Isobutanol, it has the potential to be left behind for future discoveries. With that, I am a little uncertain if dropping R&D as heavily as they have is what is best for the company in the long term, and hopefully they get that pumping as they survive the short term.
Renewable Gasoline; this is the potential big one. I don't know, and can't figure out current costs such that how much could they bring the green gas to retail, but we are going to find out soon with their Praj Industries partnership. It will be interesting to see how far off they currently are, and if it isn't just a matter of a little change in how gas prices are fixed. Little discussed fact, the government controls the price of gas and keeps it artificially low, hence why other countries it is much more expensive. If America stopped that, or instead refocused it towards some greener alternatives like this, Gevo goes from 5 years from commercialization to retrofitting existing factories in 6 months and pumping out green gas to market.
Isooctane; High performance race car fuel. Furthermore, this is made from Isobutanol, renewable gas is Isooctane + Isobutanol mixed, so as the Isobutanol --> Isooctane reaction is improved, this will get cheaper, making renewable gas cheaper as well.
Renewable Diesel; This is the long term money maker. While we may optimistically be 10 years from solar or nuclear freight hauling, few companies will have the ability to move into that space ASAP. Existing infrastructure will remain in place for as long as it possibly can, and there are legitimate arguments against pure solar/wind energy platforms; The closer Gevo gets to Diesel commercialization, the better.
Sustainable Aviation Fuel; this means there is a mix of Isobutanol (filler) plus Jet fuel (which I tried to look up, but its just a mix of hydrocarbons, the mix is jet fuel if it has the right chemical behaviours as prototypical jet fuel ).
Alcohol; this one feels silly as Gevo's big tech is making Isobutanol and not ethanol, but it shows what Gevo really is. Gevo isn't just a one-trick pony with their isobutanol yeast; Gevo is a Go-Green or else analytical monster. They are quickly realizing their biggest market isn't their Isobutanol and downstream (more than enough competitors now and on the way). This is the scene in the McDonalds movie when the Vulture learns that the real money is in the real estate.
Isobutylene/Polyester; not much more to say here other than awesome for mother earth to find a sustainable source. While carbon negative would be ideal for a plastic replacement, such as something biodegradable and didn't form microplastics, this is a huge step to (at the very least) maintain a status quo on a huge problem in the carbon balance. As the price comes down to manufacture, and future tax incentives for manufacturers using net neutral/negative products come online, this will be a great product to continue developing in the now.
Renewable Natural Gas; gevo.com
They are building a massive plant now, operational 2022 with profit revenue by Q4 2022. Please watch the video. The idea here is absolutely nuts and I love it. Collecting cow manure, they take it, remove specific elements (namely methane and other green house gases), convert it into renewable natural gas, and sell it. THEN THEY CONVERT THE MANURE INTO GREEN FERTILIZER FOR CORN FIELDS! The craziest part about all of this, is that they literally took apart every single step of the process to make green fuel et al. all the way from the cows pooping through offering you their farts to keep your house warm, getting you from work to home and back again on special yeast beer fed by produce waste grown with recycled poop of that original cow. This right there is what you are buying, the vision, the analytical mind and the technological know how to make it happen.
Animal Feed; oh yeah, they also thought about how to feed the cows without hurting the planet.
READ THIS PAGE gevo.com
When they harvest the fields, they take the corn, take the protein (kernels) and make a high protein animal feed with less/no starch (cob/stalk/leaves) because they use that to make Jet Fuel. Furthermore, they claim their animal feed is inexpensive, leads to better steaks and burgers, and makes Mother Earth happy.
Net-Zero 1
A sequel to the phenomenal Sega genesis racing game, and quite possibly the future of rural America. Not even a joke. 240 Acres of land in South Dakota where it will be next to fields of corn, loads of cattle, a factory for processing everything, as in edible corn protein into animal feed for neighbouring farms cows, manure into GHG + fertilizer, starches into Isobutanol, then into Jet fuel and Isooctane for Gevo^TM Gasoline. All powered by the natural gas burning and near by, and plugged in, wind turbines. The dream: to create a completely self-sustained plant that can support a large region of farmlands and a rural community.
This plant is going to cost $800 million+, which Gevo claims to have in cash. How was Gevo almost delisted a few months ago?
gevo.com
The factory will make 45MGPY in jet fuel and gas, all claimed already, leading to a $1.5 billion revenue for life of contracts.
Net-Zero 1 isn't just bought and paid for, its sold, and Gevo is opening the waiting list now for buyers to come on down. I do not know if Net-Zero 1 is going to go off perfectly, they don't have great breathing room here with building costs and revenue being so slim, and the costs of these things always going up (corporate espionage is a real thing), but I honestly don't think it matters. The only thing that matters is them actually making it work. Investors are so funky now, they are more forgiving for certain failures, and much less so for others. Lagging behind theory on their first full scale GevoPlant^TM is going to be natural, expected, and okay. If it is carbon neutral, or close to, it is going to be a massive hit. I won't wax poetic here, but I wouldn't be surprised if we see a resurgence of rural towns in the future with WFH, faster every day person transportation and the chance for a front yard. And these little GevoPlants speckled across the world. It sounds almost too good to be true, but that’s what ESG investing is. This is future technology based, it isn't tried and true methods, its funding the work into making magic happen. If you want to see who Gevo really is, look at the Net-Zero 1 project and study how they develop through the problems that come. Don't look for them to get it done on time or on budget, but look at how it responds to delays, building difficulties, possible catastrophes like a second COVID crisis, and if it needs more money. Net-Zero 1 should be bought and paid for, so if they need to bring in more money for this project, that would be troubling.
Praj Industries & Gevo
This pairing is worth more than a passing glance. Early on in 2020, Gevo and Praj Industries (an Indian green industrial chemical company, growing very quickly in biofuel space) went into a little deal. Gevo gives Praj it's technology to make Isobutanol, and from there gasoline and jet fuel, Praj does the actual manufacturing work (aka the hard part). This is limited to India and surrounding areas. While some may think this is Gevo giving up a huge market for pennies, I view it the opposite. Gevo is no where near the position it needs to be to offer commercial green gas to America, let alone something like India and the rapidly developing "dirty tech" nations in the region. In fact, I position this more as a humanitarian claim than a business deal; any global sanctions against pollution are going to hit the catch-up nations the hardest. Having this tech for India, and getting it to some semblance of a commercial state is going to be huge.
Gevo gives up their R&D expertise, gets a healthy royalty, name recognition, global endorsement, and more willing partners and investors to fund the same moves in the States and Europe, Asia, etc. This takes the weight off of Gevo's shoulders, lets them focus on their desired markets more organically, and at the end of the day should rapid improvements in technology occur, Praj gets left holding the bag, not Gevo. A win-win.
Furthermore, if this goes well, I suspect Gevo will attempt to find more partners in Asia and South America, 2 more regions they would have a hard time penetrating organically. Aside from the partnership in Japan, they need a Chinese company to come play with. While China may be resting the majority of its hopes on Nio, they are going to have to find a solution to diesel and jet fuel eventually. A huge part of the Praj-Gevo deal was that the jet fuel is being tested by the Indian Air Force, which means if they use it, it is going to spread like a wildfire to every other nations air force (or at least those with one).
Byogy & Gevo
If you invest in Gevo, you need to be aware of Byogy. byogy.com
Byogy is indeed the original inventor of the Alcohol to Jet Fuel catalytic pathway. While Byogy may have beaten Gevo to the punch, Gevo is reaping the rewards all the same. It is perhaps a shame that Gevo and Byogy did not merge, but different R&D processes leading to different technologies is always good. Byogy is not listed, and if they were I would go into a more thorough analysis, but in the meantime my impression is this; Byogy has that one technology to stand on, and they are making recent turns following Gevo into investing into the entire pipeline from feed to fuel, but they are following, and that means a lot. The catalytic convertor for the Jet fuel was nice, but Gevo had more fuels than Jet, and now they get that too. Investing in Gevo is a bit more like investing in a vision, that vision being every single step of the pipeline for fuel is analyzed and converted to be carbon negative.
Now this may be the part that I am reading too much on, but my understanding from various articles and blurbs on Byogy's site lead me to this theorem:
Byogy does total alcohol to jet fuel conversion. Gevo does Isobutanol fermentation (as opposed to alcohol fermentation), not Jet fuel. Byogy and Gevo (and others) are on a board of interested parties that decide the standards for jet fuel blending. Old world methods were costly and butanols are added to make it cheaper. Gevo probably favours a blend, where as Byogy would prefer a pure Jet fuel without additive, as they do not making isobutanol mix in their processes, and thus it is favourable to their platform and their business model to push for pure jet fuel. It is unknown how hard Gevo is pushing on this, or how much it affects their business strategy, but its worth noting. If Gevo has the best platform for synthetic Jet fuel is probably limited to its commercial abilities, which it appears to have better than Byogy, not its technology and R&D specialty in this process. With that said, Byogy probably wouldn't be the safest bet either.
Fundamentals
Fundamentals don't tell much of a story, that is it isn't the story that matters. It is quite clear they took a long time in development, and have just started coming out of the financial unwinding from that. But what's left is pretty damn good. Massive decrease in debt, costs, overhead, the whole thing, but that doesn't matter much as they transition to the active stage of their life. There is going to be a lot happening, the most important thing is to see their financials, not this quarter, but next, where they have to hire additional staff and begin ramping everything up.
The fundamental issue for me is this; Gevo kept going to the market for 68 million shares in January, and then did a Private Activity Bond for $68 mil. All of this isn't a bad thing, its what the system was made for and the reason why idiots spout "debt is good". It underlines a change in tone and direction of the company into active mode. The only issue is that with so many projects being undertaken, and Gevo feeling some mix of heat from competition or that teen angst, can only mean more. Gevo has to walk a fine line of borrowing too much debt, letting themselves be pushed off the edge, and pleasing their current shareholders to keep them invested and growing. If Gevo wants to do future at the market bond issuances, it should aim for a much higher valuation first.
The Float/Current Investors
198 million shares with a ~$1 billion market cap at $5/share, this feels very undervalued. Aside from R&D, field space and position (they have worked themselves up to quite a few high groups), patents and underlying assets such as their $500+ million in cash; they have a project bought and paid for with life-term contracts looking at $600+ mil in net revenue, plus a working prototype for more investors, all while building their own pipeline with farmers, local, state and federal governments. AND AT THE BEGINNING OF THE ESG PUSH!
That alone makes this an enticing gnash.
I want to start with who recently sold (as of February), because that is most important to me: Citadel, Virtu and Sigma (Point72). That feels good, because those are the pump and dump crew, so them leaving promises less destructive volatility.
The biggest loss is Vanguard, but between you and me, Blackrock>Vanguard when it comes to the ESG market. Lo and behold, the loss of Vanguard is covered by Blackrock (and some other larger hedgefunds). What is interesting is the massive list of new buyers that came in from the latest 13F filings: JPMorgan & Chase, UBS (ew), Citigroup, Teacher pension for Texas, Bank of Nova Scotia, Wells Fargo. I love Teachers, so seeing a pension fund for Teachers makes me warm and tingly. Checking out the list for yourself is worth the 5 seconds:
whalewisdom.com
The first thing that comes to mind when I see this: institutions are entering the ESG market, they put money everywhere, but seem they bought up a nice chunk of the float. The biggest and best of the bunch is Blackrock, which has been quickly establishing dominance on Wall Street, in the White House, and at the Fed. Capitalizing on social investing, they are priming themselves to be the mainstream ETF, if not just the sole survivor. As Blackrock's ESG ETFs continue growing, and other firms look to mimic them, Gevo could start to get picked up very quickly.
The 1 big thing that bothers me is Geode, Baird and Renaissance. With Hedgefunds making the decision to hide their options in banks (look at the 13Fs), it is hard to get a true perspective on how any of these 3 might fair in the markets. If they are extremely over-leveraged and get margin called, GEVO holdings get liquidated, causing a fairly large dip.
There has been a massive amount of insider buying over the past 12 months, with a total of 3.4 million net buys (most through options, but still a respectable amount of direct market buys). Nasdaq has total institutional ownership at 9.65%, Insider is 1.7, giving us a little over 174 million shares somewhere. Furthermore, short interest is 21.3 million shares (~12% short volume), which means that there is close to 200 million shares in unknown places (damn you Bloomberg terminal). If I had to make a prediction, someone has been buying up a considerable amount through some banks, and we may see some new 13F/Gs in the next few weeks. Otherwise, I don't know where $1 billion is hiding in shares.
The Team behind Gevo
Lets start with the boss, who we have already met thanks to the videos all over their site. Patrick Gruber seems genuine enough, the background music brings a tear to my eye. Fits the profile of a CEO, especially of this vehicle. He has a PhD in Chemistry, MBA, 50+ patents, sitting on Bioenergy Technical Advisory Committee (likely to see more action with a democratic president and congress), plenty of awards, and well spoken. Never underestimate a great speaker.
I think his pay seems a little bit expensive for 2019, especially when they were on the brink of delisting. And it does look like he has a bit of history of high pay. www.salary.com Is this necessarily bad? No, but I am looking for the silver bullets pre-investment, not post. With that said, he cofounded the company in 2005, has been CEO since 2007, and by all rights and purposes, the guy deserves the pay for spearheading the potential behemoth Gevo becomes.
The second person to cover is Frances Arnold, whose technology is what gives Gevo its bite, aka the special yeast (special enzyme). Dr. Arnold is my kind of people (biochemist), and a Nobel laureate (in science, so it is genuinely deserved). She is also on Biden's Science and Tech council. While she doesn't have a real role in Gevo now, its her science fueling the beast, so do not discount her pride. Furthermore, she's a Director for Alphabet now, so who knows if that could open some special deals for Gevo in the future. I wouldn't count on it, but its always nice to be aware of that "special surprise", just in case.
COO/President Chris Ryan is a carryover from the CEO's last company, deserves his spot no doubt, but fills the picture in a pretty standard way. Their CCO seems a strange choice, coming from Koch, but it looks like he has spent the last 15 years capitalizing on waste (literally) and converting it into products and profit. The last Director I want to mention is the CTO, brand new, comes from a chemical background, started in 2021. What new direction they are hoping to go with the new director will be interesting, whether its into more refined manufacturing processes, or scaling up current tech, or something else entirely, will be exciting to see.
The final thing I want to mention is the staff left unseen and unmentioned. While I am sure Gevo would be nothing without Arnold or Gruber, there are a team of engineers, techs, devs, everything else that makes this beast work. Gruber isn't the one figuring out how everything is done, he probably isn't even the one holding the whip, so whatever he says has to be backed up by an Ace team, because Gevo has some impressive stuff going on.
Disclaimer
I am going to be real honest with you; congratulations for getting to the end. Thank you for your time, I hope it was worth it. If you have any suggestions, I would love to hear it. Please don’t make an investment decision on my information alone, always double check. I am not a financial analyst, I do not get paid to write any of this, and I do not currently (5/13/21) have an investment in GEVO or it's stock price(yet). Thanks.
