Energy storage provider Fluence Energy (NASDAQ:FLNC) is on the backfoot amid a devastating accusation of legal improprieties. If the allegations turn out to be true, FLNC stock could suffer substantial harm.
According to short-seller specialist Blue Orca, Siemens Energy (OTCMKTS:SMNEY) — an energy firm formed through the spinoff of the gas and power division of Siemens (OTCMKTS:SIEGY) — is suing Fluence for breach of contract, material misrepresentation and fraud. In addition, Fluence’s other major customer, AES (NYSE:AES), is unhappy with its contractual terms and is seeking better pricing.
Fundamentally, the main concern for FLNC stock is Siemens’ alleged claims about misrepresentation of Fluence’s battery energy storage system (BESS). In particular, Siemens is upset with the technical short comings of the aforementioned BESS technology, which apparently did not meet Siemens’ technical requirements or industry standards.
Adding to the woes, Siemens may have deep reservations about Fluence’s performance claims. In the short-seller report, Blue Orca claims that Diablo Energy Storage, which sued Fluence in December last year, stated that the energy storage specialist’s performance is “woefully deficient.” Following the lawsuit filing, FLNC stock plunged 23%.
Unfortunately, the pain doesn’t stop there. Per the report, Vistra (NYSE:VST) — a large publicly traded energy company — holds Fluence at fault for a major incident at its 300-megawatt (MW)-capacity Moss Landing facility.
The Hits Keep Coming for FLNC Stock
Taken together, Blue Orca frames Fluence as a company that may be at risk of financial collapse. To use the short seller’s words, the various incidents, complaints and Siemens’ lawsuit “paint a pattern of serial incompetence, project failures and jilted counterparties.”
If that wasn’t enough of a concern for FLNC stock, Blue Orca dug in deeper, claiming that through its conversations with industry experts, “Fluence has gained a reputation across the industry for doing shoddy work and cutting corners.”
Subsequently, the bearish researcher believes that the poor reputation “could provoke an exodus of non-related party customers and more rounds of lawsuits which could easily hamstring revenues and drain its balance sheet dry.”
What makes matters worse, according to Blue Orca, is that even before a mass withdrawal of customers, FLNC stock could suffer severe pain just from the tensions stemming from Siemens and AES. As the short seller notes, Fluence appears “hopelessly dependent” on these two major enterprises.
While Fluence was spun off as a battery storage system joint venture between AES and Siemens, which each currently owns 29% of FLNC stock, per the report the “party” is ending. Fluence’s corporate parents have begun to divest, raising viability concerns.
Why It Matters
As with any short-seller attack, two sides to the story exist. However, per Seeking Alpha, Fluence did not immediately respond to the investment platform’s email request for comment. That’s worrying because Blue Orca admittedly has a strong track record for identifying financially vulnerable enterprises.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
