SES (SES) Q4 2025: ESS Revenue Jumps to 65% Mix as Drone, Materials Ramp Nears
SES delivered a transformative year, scaling revenue tenfold and shifting its business mix toward energy storage systems (ESS) as legacy auto OEM service revenue phases out. The company’s pivot to ESS, drones, and materials is now operationally visible, with ESS expected to comprise the majority of 2026 revenue. Leadership is signaling a disciplined, capital-light approach while investing in proprietary AI-driven materials discovery to unlock long-term margin and IP advantages.
Summary
- ESS Mix Shift: Energy storage systems now anchor near-term growth, eclipsing legacy auto service revenue.
- Disciplined Cost Structure: Operating expenses fell double digits, supporting improved cash burn and margin visibility.
- AI Platform Leverage: Molecular Universe accelerates material breakthroughs, positioning SES for future platform monetization.
Performance Analysis
SES’s full-year revenue soared to $21 million, up nearly tenfold year over year, propelled by final auto OEM service milestones and the UZ Energy acquisition fueling ESS sales. The quarter’s gross margin compressed to low double digits as ESS hardware, which carries lower margins than services, became a larger revenue contributor. ESS accounted for the majority of Q4 revenue, with management confirming that 2026 will see ESS comprise at least 65% of the topline, reflecting a decisive pivot from one-time auto service contracts to recurring product sales.
Operating expenses declined sharply, with full-year GAAP opex down 15% and non-GAAP opex down 11%. Adjusted EBITDA loss improved 23% year-over-year, reflecting both cost discipline and early signs of operating leverage. Cash burn moderated, and SES exited the year with $200 million in liquidity, providing ample flexibility for scaling ESS, drones, and materials businesses. 2025’s results mark a clear inflection in SES’s business model, with recurring ESS and product revenue replacing lumpy, non-recurring auto development fees.
- ESS Hardware Dominance: ESS now represents SES’s largest near-term opportunity, with new software attach (PREDICT) set to boost value per system.
- Service Revenue Sunset: $13.6 million in 2025 auto OEM service revenue will not recur, clarifying the path to a pure-play product and platform model.
- Cost Rationalization: 40%+ opex reductions in Q4 signal a sustainable, capital-light operating model as SES scales.
With legacy auto work complete, SES’s 2026 story is about execution in ESS, drones, and materials, and realizing margin expansion as it bundles AI-enabled analytics into its hardware and leverages its proprietary materials discovery engine.
Executive Commentary
"I'm very proud that we made more progress in the past year than the previous 10 plus years combined. This development of the molecular universe has sped things up for us. SES continues to be well positioned to solve the issues of battery development and safety requirements."
Qi Chaohu, Founder and Chief Executive Officer
"We exited 2025 with a strong liquidity position of 200 million, coming in at the top end of our previously communicated expectation... Our CapEx-light business model remains a core financial discipline, and we are confident our current liquidity provides a strong runway to fund operations and execute on our 2026 growth initiative."
Jing Mielis, Chief Financial Officer
Strategic Positioning
1. ESS as Core Revenue Driver
SES’s acquisition of UZ Energy and entry into the ESS market has fundamentally shifted its business model. ESS is now the largest and fastest-growing segment, with global reach from Australia to North America. The company’s edge lies in bundling its PREDICT AI analytics with hardware, enabling asset owners to optimize energy trading and maintenance, a differentiator in a fragmented ESS landscape.
2. Drones Market Focus and Supply Chain Compliance
The U.S. defense drone market is a near-term growth priority, with SES converting existing Korean facilities to NDAA-compliant production for high-density lithium metal batteries. The company is targeting high-value, large-order drone customers and leveraging its unique compliance and manufacturing assets to win in a supply-constrained market.
3. Molecular Universe Platform as Competitive Moat
Molecular Universe, SES’s proprietary AI for science platform, is both a driver of internal efficiency and an emerging external revenue stream. The platform’s rapid material discovery has accelerated new product development and underpins the company’s ability to deliver differentiated battery chemistries and materials to market faster than peers.
4. Capital-Light Model and Margin Expansion Path
SES is executing a capex-light approach, leveraging JVs and contract manufacturing to scale production without heavy capital outlays. This model supports margin improvement as volumes ramp and software attach rates increase, especially in ESS and drones.
5. Strategic Pivot from Auto OEMs to Platform and Product
With auto OEM C-sample programs on hold due to industry-wide EV investment slowdowns, SES is redeploying resources from legacy service work to scalable product and platform sales, focusing on markets with clearer near-term demand and better margins.
Key Considerations
SES’s 2025 results mark a business model transition, with the company now reliant on the growth trajectory of ESS, drones, and materials. Investors should weigh the following:
Key Considerations:
- ESS Software Attach Opportunity: Early traction with the PREDICT feature could drive higher-margin recurring revenue and customer lock-in.
- Drone Supply Chain Shift: SES’s NDAA-compliant battery production is well-timed as U.S. defense and allied drone manufacturers seek secure, domestic supply.
- Materials Commercialization: The JV with Hyzen and six new materials discoveries open new revenue channels and validate the Molecular Universe approach.
- Cost Structure Discipline: Sustained opex reductions provide operating leverage, but future growth will require balancing R&D and go-to-market investment.
- Legacy Revenue Replacement: The absence of auto OEM service revenue increases reliance on execution in new business lines to maintain topline growth.
Risks
SES faces execution risk in scaling new product lines, particularly in converting pipeline opportunities in ESS and drones into recurring revenue at target margins. The ESS market is fragmented and price-competitive, while defense drone demand is subject to regulatory and geopolitical shifts. Loss of auto OEM service revenue removes a safety net, heightening the need for commercial traction in core segments. The pace and success of Molecular Universe monetization remains unproven and could lag expectations.
Forward Outlook
For Q1 2026, SES expects:
- Revenue to reflect the $1.5 million shipment delayed from Q4 2025
- Ongoing ESS hardware and software bundle ramp
For full-year 2026, management guided to:
- Revenue of $30 million to $35 million (up 43% to 67% YoY on a normalized basis)
- Blended gross margin of around 15%, with upside as software and materials scale
- Further 15% reduction in operating expenses versus 2025
Management highlighted:
- ESS will comprise at least 65% of 2026 revenue, with drones and materials weighted to the second half
- Capex to remain in the single-digit millions, focused on drone line conversion and Southeast Asia expansion
Takeaways
SES has completed its pivot from auto OEM services to a diversified, product-driven business anchored by ESS, drones, and proprietary materials.
- ESS and Drones as Growth Engines: Execution in these segments is critical, with ESS anchoring topline and drones offering margin upside as volumes scale and compliance advantages are leveraged.
- AI Platform as Differentiator: Molecular Universe underpins both rapid product innovation and future platform monetization, though near-term revenue remains modest.
- 2026 Execution Watch: Investors should track ESS software attach rates, drone order conversions, and materials JV commercialization as lead indicators of durable topline and margin expansion.
Conclusion
SES’s 2025 performance validates its transition to a capital-light, multi-segment business, with ESS now the anchor and AI-driven materials discovery providing a long-term moat. 2026 will test SES’s ability to scale commercial operations and realize the full value of its platform strategy, as legacy revenue gives way to recurring product and software sales.
Industry Read-Through
SES’s shift from auto OEM services to ESS and drone batteries signals a broader realignment in battery tech commercialization, as EV investment pauses and defense plus grid storage markets accelerate. The company’s emphasis on AI-driven materials discovery and NDAA-compliant manufacturing highlights emerging industry requirements for supply chain security and rapid innovation. Competitors in battery, energy storage, and advanced materials should note the growing importance of platform business models and the value of proprietary data in driving both product and commercial differentiation.