Investors traded out of Origin Materials Inc. stock earlier this month as the West Sacramento company that's been developing zero-carbon and biologically sourced plastic announced some major changes.
Origin’s (Nasdaq: ORGN) shares fell more than 66% after the company said it would take years longer to fully open its second manufacturing plant, and the company also said that it would get into the biofuel business.
Pavel Molchanov, an analyst with financial firm Raymond James & Associates Inc., issued a research comment after Origin’s announcement, saying that the stock faced a “painful reset after a sudden pivot to different products and higher capital expenses."
Only months ago, Origin appeared to be solely focused on replacing petroleum in the manufacture of plastic, Molchanov said.
“Everybody loves the concept of replacing petroleum-based plastic with more sustainable choices,” Molchanov said in an interview. He wrote in a research report that "the addressable market is practically limitless."
Earlier this year, Origin said it had $9.3 billion in orders lined up for its sustainable plastic, from international companies including Mitsubishi Group, Nestle SA and PepsiCo Inc. (Nasdaq: PEP).
Then, early in August, Origin executives said they were interested in manufacturing biofuel for transportation. That potentially puts it into a riskier business, in competition with a vast number of startups to make and sell a low-value commodity, Molchanov said.
"The lesson of history is that scaling up production (of biofuels) is easier said than done: the operational hurdles are substantial," Molchanov wrote in a research note. "Origin is one of many emerging players pursuing this opportunity, and we have always underscored that caution is warranted until the technology platform can be successfully validated. And now, the abrupt pivot into the biofuel market is jarring for investors who had been accustomed to looking at Origin as a specialty biomaterials story.”
Origin shares, which had been trading in the mid-$4 range for most of June and July, have been trading around $1.40 since the executives disclosed an updated construction timeline and plans to add the new product line of fuel, during a conference call with investors and analysts.
Origin had only just initiated the startup in June of its first commercial-scale plant to manufacture zero-carbon plastic precursor materials in Canada.
The company had previously estimated that it would open its second plant, at a cost of $1.1 billion, in mid-2025.
But in its update, Origin said it would open its second plant in phases, with the first phase to open in late 2026 or 2027, and the second phase to be completed in 2028 at a total cost of $1.6 billion.
“That is a minimum of three years, and they will be burning cash,” Molchanov said. He added that most of these kinds of projects tend to be delayed.
Origin executives said on the conference call that they chose to build the second plant, in Louisiana, in two phases because of higher-than-anticipated labor and materials costs, specifically for steel.
They said costs are also going up because of ongoing supply chain problems and increasing interest rates.
In response to a request for comment for this story, an Origin Materials representative sent links to the company's previous public statements.
The first phase of the new factory is expected to cost $400 million, and the second phase up to $1.2 billion.
From that first phase, Origin plans to produce its zero-carbon plastics as well as a biofuel with potential applications including marine fuel. The company anticipates demand for sustainable marine fuel because of international decarbonization goals.
Origin has forecast that it will achieve profitability after the opening of the first phase of the Louisiana plant.
