What happened
Shares of Enovix(NASDAQ: ENVX) slumped on Tuesday and were trading 17% lower as of noon. The lithium-ion battery manufacturer baffled investors today when it announced the restructuring of its only factory.
So what
Enovix said it has initiated a "realignment" of its factory in Fremont, California, to turn it into an innovation center focused on product development.
In July, the company finalized a second factory in Penang, Malaysia, that it expects to start production in 2024. Enovix believes its move supports its strategy to "locate high-volume manufacturing in Asia near customers and suppliers while locating technology development in both Silicon Valley and Asia."
Management stated that it is also switching from a "horizontal" business strategy that builds a standard-size battery for hundreds of customers to a "vertical" strategy that will focus on customized batteries for large customers.
Enovix foresees high demand for batteries from smartphone manufacturers in 2025 and expects them to require samples in the near term. Its new vertical strategy should, therefore, help it meet demand and scale up its business. The company is primarily focused on consumer electronics, including smartphones, smartwatches, laptops, and augmented- and virtual-reality products.
Now what
The long-term goal of moving production closer to its customers and suppliers in Southeast Asia will hurt Enovix in the short term because it produced only about 24,000 small battery cells in the third quarter against its target of 36,000. The company still produced enough cells for its U.S. Army program in the quarter.
Enovix also expects to incur restructuring charges of around $2.5 million in the third quarter and high depreciation charges of about $36 million on the California factory. The company incurred a loss of $64 million in its last quarter.
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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
