Key Points:

• GEVO claims to have technology that allows it to turn inedible field corn into isobutanol, which can be a blendstock for sustainable aviation fuel (SAF) and other premium fuels. More simply, GEVO claims it can turn corn into jet fuel.

• GEVO went public in 2010 after acquiring and retrofitting a production facility in Luverne, Minnesota. At the time GEVO said it would produce 10,000 barrels of SAF per day by 2012 and 60,000 by 2020. Instead GEVO effectively mothballed the plant in 2022.

• In 2021, GEVO introduced its Net Zero 1 (NZ1) plant, in Lake Preston, South Dakota. The plant was to be financed by 2022 and fully operational by 2024.

• After going through several different iterations of financing plans – and facing delisting – GEVO announced it would pursue funding through a Department of Energy (DOE) loan. As of 2024, all of GEVO’s hopes for financing NZ1 hinged on the DOE loan.

• On October 16, GEVO announced it secured a $1.46 billion conditional loan from the DOE. While the DOE made clear that this was a “conditional commitment”, GEVO management has made representations that the loan is more likely to happen than it really is. We think regulations are clear: a conditional commitment is not binding if the DOE does not want to fund the loan. GEVO has said the loan would close no earlier than 2025, which means the Trump administration will be the one to fund or reject it.

• We believe a Trump DOE is much less likely to approve the loan, as the DOE’s multibillion-dollar loan program is known to be in Trump’s crosshairs. We believe that failure to close the loan would cause a funding crisis for GEVO, and would likely result in massive shareholder dilution. And even assuming the loan is still a go, the other conditions still likely crush GEVO’s equity.

• The EU Commission, Non-partisan think tanks and International Civil Aviation Organization have all criticized the sustainability claims of any and all ethanol derived sustainable aviation fuel. We suspect this form of “greenwashed” fuel will be avoided by international airlines as a result.

• GEVO has a long history of promotional activity with little to show for it: the company has lost money in every quarter since going public. GEVO has generated minimal revenue, while shares outstanding have ballooned 1,269% since the IPO.

• We are short GEVO shares, and think shares will soon give back the rest of their recent gains as shares are crushed by further dilution.

Initial Disclosure: Funds managed by Bleecker Street Capital, LLC are short Gevo, Inc. (GEVO). Please see the full disclosure at the end of this report.

Introduction 

GEVO, Inc. (GEVO) calls itself a “growth-oriented, carbon abatement company with the mission of solving greenhouse gas emissions.” To further this goal, GEVO has been, for ~20 years, attempting to develop and commercialize a process that turns “residual starch from inedible field corn” into sustainable aviation fuel (SAF). More technically phrased, GEVO has a process that converts isobutanol into a blendstock for various hydrocarbon products, primarily jet fuel.

GEVO’s main product since going public in 2010 has been selling this carbon abatement story. Things have not gone well. GEVO has gone from partnership to partnership, and delay to delay. It has never achieved a profit in any of the 52 quarters since going public, and it has been able to generate only minimal revenues. The only things that have consistently grown are shares outstanding (up 1,269% since IPO) and executive compensation.

While we will explore below the full history of GEVO’s over-promising and not delivering at all, the brief version is that GEVO went public with a story that it would convert an ethanol refinery into a SAF production facility. This facility was to be generating 60,000 barrels of SAF per day in 2020. GEVO never generated meaningful revenue from the facility and mothballed it in 2022, citing a history of losses.

GEVO then pivoted to what they are calling a Net Zero 1 (NZ1) plant, to be built in South Dakota. Announced in 2021, and supposed to be operational in 2024, GEVO’s NZ1 plant went through a host of different financing options. After GEVO failed to raise the private capital it had talked about getting, GEVO finally turned to the Department of Energy (DOE) loan program.

GEVO received a $1.46 billion conditional commitment from the DOE in October. GEVO has represented that receiving the actual loan money is just a matter of execution from here, but we believe the Trump administration can simply decline to fund the loan. And the DOE loan program is one that has been in Trump’s crosshairs for a while.

On a conference call regarding the DOE loan, GEVO CEO Patrick Gruber was asked if a Republican win in the presidential election would “jeopardize” the loan. He responded that the “conditional commitment survives administrations,” which doesn’t answer the question.

In an additional blow to GEVO, North Dakota voters rejected a pipeline law that was necessary to fast-track a key component of NZ1, carbon capture and sequestration (CCS). CCS is so important to NZ1 that GEVO had previously threatened to move its plant if this pipeline wasn’t built. Perhaps out of desperation, GEVO spent $210 million in September to acquire energy assets in North Dakota that include CCS; but the North Dakota assets don’t qualify for the DOE loan. This acquisition will cause net cash to dwindle to an estimated $38 million, shrinking GEVO’s options as it continues to struggle  to get NZ1 financing over the line.

For these reasons, GEVO is now entirely reliant on the conditional commitment from the DOE turning into a funded loan, and we think this is much less likely under the incoming administration.  As such, we are short shares of GEVO.

GEVO’s History: Long On Promotion, Short on Revenue, Cash Flow

Founded in 2005, GEVO has a long history of promotional activity around whatever happens to be hot in the markets and no history of making money: it has lost money every quarter since it went public in 2010.

When GEVO IPOed, it was touting a letter of intent (“LOI”) with United Airlines to provide 10,000 barrels a day of renewable jet fuel produced from GEVO’s isobutanol product to be developed in a former ethanol plant in Luverne, Minnesota that GEVO acquired around the time of its IPO.

GEVO said at the time it would begin providing 10,000 barrels per day in Q4 2012, and “contemplated” a ramp up for 30,000 barrels per day in 2015, and 60,000 per day in 2020.

Luverne was the previous shiny object for GEVO before NZ1, and anyone contemplating the success of GEVO with NZ1 should study Luverne. Luverne was built out at small scale to support ~1 million gallons of isobutanol production a year. GEVO sold some of this to customers, and talked about scaling up the plant to support 17, 20, and 30 million gallons of capacity. But the plant consistently generated gross losses. Gradually GEVO shifted Luverne to ethanol production only, seemingly in an effort to make money, but gross losses continued and GEVO eventually halted ethanol production.

In 2021, GEVO management brought NZ1 to the forefront and stopped talking about expanding Luverne production. In Q2 2022, GEVO suspended operations and the plant remains effectively idle with a “history of operating losses.”

But stock promotions run on hope, and in 2021 GEVO had changed course. It was now going to build a greenfield facility in South Dakota to build its corn-to-jet-fuel vision for the future. The plant was called Net-Zero 1 (NZ1), and was supposed to be fully funded in 2023 and operational by 2025. Of course, that has not happened.

Instead, just like in its first iteration, GEVO has missed deadlines and seen losses continue to pile up. We will first explore how GEVO got here, and then discuss what we think will happen with the conditional DOE loan.

 

Read More:   https://www.bleeckerstreetresearch.com/research/gevo