HPQ Silicon: The Green Light for Commercialization
The path from a good idea to a commercially successful product is a long one. HPQ Silicon has, however, recently reached important milestones on the road to commercialization. The Canadian company is focusing on silicon-based battery materials, a novel process for pyrogenic silica, and decentralized hydrogen systems.
Silicon anode materials are intended to improve the performance of modern batteries. Pyrogenic silica—also known as fumed silica, Aerosil, or HDK—is already found in numerous industrial products. HPQ aims to produce this specialty material directly from quartz, thereby reducing costs, energy consumption, and CO₂ emissions.
The battery business appears to be the most advanced. Together with the French company Novacium, in which HPQ holds a 36.8% stake, the company is developing silicon-based anode materials. HPQ also holds the exclusive North American marketing rights to Novacium’s battery and hydrogen technologies.
Through LN Innov, HPQ is exploring the establishment of a Canadian production platform for electric drone propulsion systems. Since supply chains have so far been heavily dependent on Asia, HPQ could become a building block of an independent North American value chain.
The reported net income of CAD 35.5 million should not be confused with operating profitability. Following the formal loss of control over Novacium, the deconsolidation and revaluation of the investment resulted in a non-cash book gain of CAD 39.3 million.
Additional capital was raised through private placements and a convertible bond. Canada pledged subsidies of up to CAD 3 million; the government-owned Investissement Québec holds approximately 8% of HPQ’s shares. HPQ must now transition the technology to commercially viable production.
Silicon can absorb significantly more lithium than graphite, but often ages faster due to significant changes in volume. Novacium aims to solve this problem with materials that can be integrated into existing production lines. GEN3 cells achieved more than 4,000 milliampere-hours and still retained 80% of their original capacity after 1,000 charge cycles. GEN4 cells reached more than 7,000 milliampere-hours under extended test conditions.
Certifications are crucial for commercialization. The GEN4-21700 platform initially received UL 1642 certification. The certified configuration achieves 6,500 milliampere-hours, which is 8.3% more than GEN3. This was followed by UN 38.3 certification, allowing the cells to be shipped worldwide. Several companies in the drone and defence industries are already testing the technology in qualification programs.
One specific application is the AA NOVA 6S3P battery pack, developed at the request of a European drone manufacturer. It is designed to improve range, flight time, and payload. If qualification is successful, orders could follow. According to HPQ, another GEN4 battery pack achieved an energy density of 395 watt-hours per kilogram—23 to 36% more than various comparable products.
The second pillar is the Fumed Silica Reactor, developed in collaboration with PyroGenesis, which is designed to convert quartz directly into fumed silica via a plasma process. The laboratory results were reproduced in a pilot plant approximately 20 times larger. The material meets commercial quality standards; an initial order for 50 kg for customer testing has been placed. The next goal is a plant with an annual capacity of 1,000 metric tons.
The third technology area is the METAGENE system, which generates hydrogen locally via a chemical reaction. Potential applications include remote locations as well as military and mobile energy supply. The first commercial-scale container is scheduled for delivery in the first quarter of 2027.
HPQ currently has a market capitalization of only about CAD 68 million. If one of the technologies achieves a commercial breakthrough, the valuation offers considerable upside potential. However, much of the performance data still comes from laboratory and pilot trials. There are also financing and dilution risks. The stock therefore remains a promising but speculative addition to a portfolio.
Evonik: Forecast Raised Significantly
Evonik demonstrates the importance of fumed silica on an industrial scale. The specialty chemicals group, with its AEROSIL brand, is one of the world’s leading suppliers. Its products are used in paints, adhesives, batteries, cosmetics, and pharmaceuticals, among other applications.
Evonik also has strong operational fundamentals at its disposal. The company is currently benefiting from supply bottlenecks among Asian competitors. In the second quarter, revenue rose by 11% to EUR 3.89 billion, while adjusted EBITDA increased by 24% to EUR 630 million. The EBITDA margin improved from 14.5% to 16.2%. The Advanced Technologies segment performed particularly well, with earnings climbing 25% to EUR 333 million. In the Inorganics segment, higher demand for precipitated silicic acids, among other factors, drove revenue growth. At the same time, free cash flow turned from a negative EUR 211 million to a positive EUR 49 million. Evonik now expects adjusted EBITDA of EUR 2.0 to 2.2 billion for 2026, up from its previous forecast of EUR 1.7 to 2.0 billion. CEO Christian Kullmann cautions, however, against overestimating this tailwind. The fundamental challenges facing the chemical industry remain.
The expanded efficiency program is expected to provide additional earnings momentum. Evonik plans to cut another 3,200 jobs by the end of 2029. The restructuring is painful but should improve the cost base sustainably. After years of disappointing stock performance, a great deal of skepticism is already priced into the stock. Evonik is a good fit for countercyclical investors who are betting on an operational recovery and attractive dividends.
Rheinmetall: Growth with a Minor Dip
Rheinmetall is no longer known solely for tanks and ammunition. The DAX-listed company is massively expanding its business with military drones and drone defence systems. In April, Rheinmetall received a framework contract from the German Armed Forces worth several billion euros for the FV-014 reconnaissance and attack drone. The first call-off order amounts to approximately EUR 300 million. The contract includes an option for a five-digit number of systems.
Operations are also running at full speed. In the second quarter, revenue jumped 69% to EUR 3.29 billion. Operating profit more than doubled to EUR 562 million. The operating margin improved from 13.4% to 17.1%. The so-called “nomination”, which includes not only firm orders but also newly concluded framework agreements, nearly sextupled to EUR 11.37 billion. The order backlog exceeded the EUR 80 billion mark.
There is, however, a slight setback. Following the cancellation of the F126 frigate program, Rheinmetall lowered its revenue forecast for 2026 by EUR 300 million this week. Instead of EUR 14.0 to 14.5 billion, revenue is now expected to range from EUR 13.7 to 14.2 billion. Management is sticking to its target margin of around 19%. The target for the order backlog was also reduced from around EUR 135 billion to more than EUR 100 billion. While this may sound sobering at first, it should be manageable given the strong demand in other areas.
Free cash flow is currently being weighed down by deferred down payments, inventory buildup, and high investments in new capacity. Operationally, however, the growth story remains intact. Rheinmetall is the most dynamic, but also the most ambitiously valued, stock of the trio. Pullbacks therefore present opportunities for a gradual entry.
The three stocks cater to different investor profiles. HPQ Silicon offers the greatest percentage potential, but also carries the highest risk. Evonik is the countercyclical value and dividend play. Rheinmetall impresses with tremendous growth and full order books, but is already ambitiously valued. Speculative investors are betting on HPQ, value investors on Evonik, and growth-oriented investors on Rheinmetall.
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