Solid-State Battery Stocks: Should You Invest in Next-Gen Batteries in 2022?

The transition to EVs appears unstoppable, but expensive, flammable, and slow-to-charge lithium-ion batteries remain a stumbling block. Solid-state battery makers promise cheaper, fast-charging batteries that won’t catch fire. But are these companies too speculative to be good investments?

SustainFi   Updated February 22nd, 2022

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Why invest in solid-state batteries?

U.S. EV sales doubled in 2021 to over 650,000 vehicles or 4.4% of the market. In China, EVs already represent over 20% of all new cars sold. However, the future of electric cars depends on advances in battery technology.

EV batteries account for over 30% of the cost of electric vehicles today. Although the cost of lithium-ion batteries dropped by 90% over the past decade, conventional batteries have limitations. They take a while to charge, catch fire, and have a limited range.

Conventional lithium-ion batteries contain a liquid electrolyte, which is flammable. In contrast, solid-state batteries use a solid electrolyte; that’s why they’re called “solid-state.” Solid electrolytes are less likely to catch fire, promising better safety, better ranges, and longer life. A solid-state battery should take around ten minutes to charge. And higher energy density results in more range.

Solid-state batteries, which need less green metals like cobalt, should also cost less, eventually making EVs cheaper than regular cars.

Safer and cheaper solid-state batteries could be a game-changer for the EV industry. BloombergNEF, Bloomberg’s research arm, expects that solid-state batteries will account for 45% of the EV battery market by 2035, from 0% today. It would be hard for carmakers to pass on better batteries, which would create a revolutionary shift in the battery industry.

However, we don’t know if publicly traded solid-power companies will be the ones to commercialize the technology successfully. They are competing with conventional battery manufacturers and even automakers like Toyota.

What are the risks of solid-state battery stocks?

The technology remains unproven

Solid-state batteries for cars haven’t been commercialized yet, although some early tests have gone well. Solid-state battery manufacturers need to mass-produce products that will work with different car models in different climates. QuantumScape, the largest solid-state battery developer, hasn’t disclosed much information, making its claims harder to verify.

Commercial production is not expected for a while

Solid-state technology is a long-term bet. Because revenues are far away, investors have to look at partnerships, battery tests, and other technical milestones to judge how well the investments are doing.

Future earnings are heavily discounted in a rising interest rate environment

Solid-state battery companies don’t expect to start commercial production until 2025, with meaningful revenues further into the future. Higher interest rates hurt stocks with high valuations and far-off revenues more. Besides, investors are not currently favoring pre-revenue startups.

Publicly traded solid-state battery companies

  • QuantumScape Corp (QS)
  • Solid Power (SLDP)

Several startups are trying to disrupt conventional EV batteries, though only two of them are publicly traded. Conventional battery players like China’s CATL and Korea’s SK Innovation and LG Energy have also invested in the technology. Toyota is developing solid-state battery cells internally.

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The two startups, QuantumScape and Solid Power, have different technological approaches and different business models. QuantumScape plans to make its own batteries, and Solid Power will outsource manufacturing. Solid Power’s selling point is that its batteries can be made using existing EV battery equipment and facilities. However, both companies signed up impressive automaker partners and plan to start commercial production around 2025.

QuantumScape Corp (QS)

  • Market capitalization: $6.3 billion

San Jose, California-based QuantumScape is a pre-revenue startup developing solid-state batteries. It has an impressive roster of backers, including Bill Gates and Volkswagen, a major investor and partner. The company has since signed up other car manufacturers, too.

In 2021, QuantumScape successfully tested multi-layer battery cells, a key milestone, and secured space for an early-stage manufacturing facility. In April 2021, Volkswagen’s scientists independently verified QuantumScape’s earlier test results, paving the way for an extra investment from Volkswagen. In 2022, the company plans to demo its proprietary battery cells and ship the first samples to customers.

If successfully mass-produced, QuantumScape batteries are not limited to EV battery packs. In early 2022, they announced a partnership with Fluence Energy, a developer of battery storage technologies. Solid-state batteries could store energy from intermittent power sources like wind and solar. This makes the total addressable market even bigger.

QuantumScape stock is highly speculative. Despite over $6 billion in market cap, the startup has zero revenue while spending hundreds of millions on capex. The company plans to spend another $325-375 million in 2022, though 2023 capex should decline materially.

QuantumScape expects to start early production in 2023, with commercial batteries shipping in 2024 or 2025. On the positive side, the company enters 2022 with over $1.4 billion in liquidity.

QS stock is down over 30% in 2022 so far on market volatility; nothing bad has happened to the company.

Solid Power (SLDP)

  • Market capitalization: $1.2 billion

A competitor of QuantumScape, Solid Power is a pre-revenue startup developing solid-state batteries for EVs. The company went public via a SPAC merger in December 2021, with shares surging during the market debut. Solid Power says that making its solid-state batteries is similar to conventional batteries, so carmakers can easily switch. SLDP’s investors include Ford and BMW, which will get the first battery shipments.

Unlike QuantumScape, Solid Power is pursuing an asset-light strategy, meaning that they license their technology to manufacturers who will make the batteries. For example, Solid Power has partnered with SK Innovation, a top Korean EV battery manufacturer. SK Innovation has invested $30 million in SLDP, saying that it plans to produce solid-state batteries by 2025.

As a result, Solid Power doesn’t have to invest millions to build battery factories. On the other hand, they will have less control of the manufacturing process.

SLDP’s stock has been extremely volatile since its trading debut. But, according to its management team, volatility doesn’t really matter. Right now, the stock has a binary outcome. SLDP will have a successful product, or they won’t. In the meantime, material sales are far away: SLDP is hoping for $1 billion in revenues in 2027.

🔔 Compare Solid Power to QuantumScape.

NOT INVESTMENT ADVICE. The content is for informational purposes only; you should not construe any such information as investment advice.

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