https://x.com/IcebergResear/status/1854961131745690053

We are short Gevo Inc ($GEVO). The change in the US administration is the obvious threat but problems run deeper, in particular the competitiveness of technology. A lot of room to fall further.

In its last days, the Biden-driven Department of Energy has granted conditional approval for a $1.46b loan to Gevo, aimed at building a plant to produce alcohol-to-jet ("ATJ") aviation fuel.

Under a Trump-led administration, who called the IRA a "Green New Scam", Gevo's project is one of the most vulnerable DOE conditional approvals. The massive loan is subject to multiple conditions before approval, placing control in the hands of the DOE's new leadership.

Sustainable aviation fuels (SAF), whether HEFA or ATJ, are structurally more expensive than traditional jet fuel, and rely heavily on tax credits e.g. IRA and RFS. Generous IRA credits are now threatened and in any case, they expire in 2027.

ATJ (Gevo's type) is also more expensive than HEFA, the most common type of SAF (see above). Bulls argue HEFA will face future feedstock supply constraints (e.g. used oil), hence the need for ATJ.

The EU has mandated 6% SAF use by 2030, but even when the rule is implemented, current and incoming HEFA production will more than cover demand.

In the US, the DOE believes that HEFA won't cover SAF needs in 2030. But the DOE has assumed SAF would account for 12% (3b gal) of all fuel usage (25b gal) even though SAF adoption will be voluntary in the US, while Europe's 6% is mandatory.

Hard to believe that US airlines would voluntarily use twice more SAF than their European peers while airline margins are notoriously thin. Assuming 6% usage, in line with the EU in 2030, we found that expected US HEFA capacity (1.7b) will cover SAF needs (1.5b gal).

Worse, the electrification of vehicles will reduce the usage of renewable diesel, which shares the same feedstock as HEFA. This would release HEFA supply in favour of SAF. Another issue is that the EU bans crop-based biofuels like corn. Corn is Gevo's primary feedstock.

The track record of operators is crucial for a project as large as Gevo's ATJ plant. Gevo is known to have a history of under-delivering on promises. In 2019 for example, management unveiled plans to achieve $63-$77m of revenue in 2021. Actual revenue for the year was $0.5m.

Since 2013, the company has burnt through $678m of cash, and raised $887m in common equity. Share count has grown about 16x since 2019. Still, top managers received very attractive compensation packages despite this poor performance.

We believe the shifting political landscape and the challenging economics of ATJ make Gevo's renewable project highly speculative and prone to failure.