Over the past couple of months, the share price of Ilika (LSE: IKA) has tumbled. It is now more than 30% down from its April highs. Over the past year, though, it still shows a 230% increase.
Here I look at why the Ilika share price is volatile before considering whether it can recover from its recent fall.
Ilika and UK battery shares
Ilika is not a well-known company, as it does not yet sell its products in large quantities. It has spent some years developing solid state battery technology. Specifically it is working on two types of batteries that it calls Stereax and Goliath.
Solid state batteries are expected to benefit from an upsurge in demand as the electric vehicle market grows. But this is not an easy technology to master. Few companies so far have a compelling product platform for such batteries. Ilika is one that does.
That is why the company has a market capitalisation in excess of a quarter of a billion pounds, despite having revenue last year of under £3m. The Ilika share price isn’t based on the company’s current business performance in my opinion. Rather, it represents the excitement of some investors about potential growth in the electric battery market overall and Ilika’s ability to tap into that.
Why has the Ilika share price fallen?
The company has had some good news over the past few months. For example, it announced a collaboration with a Fiat subsidiary to scale up the Goliath pre-pilot production line. It has also leased a manufacturing facility and has been making the tools it needs to produce Stereax at scale.
So why has the Ilika share price fallen despite it moving closer to commercialisation?
I think the answer lies in the difference between demand and supply improvements. Moving to scale up manufacturing operations could help the company’s ability to supply batteries. But it will still need to generate demand for those products. It has limited commercial experience in that regard.
Additionally, a lot of the share price is riding on the company’s technology. While many analysts think it has real potential, so far the applications of its technology have been at limited scale. Meanwhile, the battery sector has been a focus for many companies, including car manufacturers. The whole sector could become a lot more crowded, threatening the relative value of Ilika’s technology.
Will the Ilika share price recover?
There is an interesting product development story here, but also signs of speculative trading. I think the Ilika share price has gone up and down partly because many investors want to buy into solid state battery stories but few listed companies have such technology.
That could continue to be the case. I expect that the Ilika share price will continue to reflect a broad investment thesis about electric vehicle batteries more than a specific analysis of Ilika’s prospects. That suggests that the Ilika share price could recover fully. But equally, it could continue to fall – even if the company makes more positive moves on mass commercialisation.
That is why I won’t invest even after the recent fall in the Ilika share price. I don’t think I have the necessary expertise to assess how sustainable the company’s technological edge is. Additionally, I think the share price reflects enthusiasm for batteries overall, not just Ilika.
christopherruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.