Solid Power – The Leader in Next Generation Solid State Batteries
- Solid Power is closer to market with solid state EV batteries than any other company in the sector and is roughly 80% less expensive than nearest comparable Quantumscape (market cap $1.2B $SLDP vs $14.6B $QS)
- Solid Power has formalized joint development agreements with Ford, BMW and SK (Korea’s third largest conglomerate) as well as receiving multiple government grants
- Tesla’s new 4860 battery is only around 9,000 mAh, compared to the 100 Ah (100,000 mAh) battery Solid Power will be releasing in 2023
- SPAC Ticker: $DCRC / DeSPAC ticker: $SLDP (merger is on 12/7)
Who is Solid Power?
Solid Power is making a “New Breed of Battery” namely solid state batteries primarily for Electric Vehicles (“EVs”). They have been in R&D mode for the last 8 years and are now ramping towards production and will be the first to commercial production using existing lithium battery manufacturing facilities. The advantages of moving to solid state batteries are many but some main ones include:
- Double the range of current batteries
- More than double the life of current batteries
- Non-volatile (they don’t catch on fire during accidents like current batteries)
- Cheaper to manufacture at scale
- Their batteries do not use Cobalt which is currently being cornered by aggressive Chinese acquisitions
What is even more exciting are their partners and investors
Solid Power Partners
Ford has committed to a joint venture with Solid Power and plans to eventually incorporate their batteries into its EVs. Ford is projecting that it will be producing 600,000 EVs by 2023 (Source: https://www.msn.com/en-us/money/companies/ford-plans-to-increase-ev-production-to-600000-vehicles-by-2023/ar-AAQSlV5) making Ford the second largest EV producer after Tesla.
BMW may also soon be a completely electric vehicle company with Germany planning to phase out all petrol and diesel vehicles by 2030 (Source: https://www.lifegate.com/germany-electric-cars)
It’s not only the private sector that loves Solid Power. The U.S government has given them multiple grants and contracts going back to 2013 to fund their R&D in the hopes of incorporating solid state batteries into future weapons systems (Source: https://govtribe.com/vendors/solid-power-inc-dot-6lyk5#related-federal-contract-awards-table). The new infrastructure bill also includes $6 billion allocated towards battery infrastructure which is a potential pot of money Solid Power can access to turbo boost their R&D.
Why is Everyone Excited About Batteries?
Morgan Stanley has said that “Batteries Are the New Oil” and with our rapidly approaching electric future I can’t help but agree. As more and more of our infrastructure runs off batteries the companies that control this resource will be the new providers of energy in the future replacing the Exxons and BPs of today. The EV market has a TAM of $300B at 50% penetration and $600B at 100% EV penetration as projected to take place in 2035. The most exciting of these companies and the one with the most advanced technology, in my opinion, is Solid Power and we have a real gift being handed to us here being able to get into this thing early and on the ground floor of the future here. Solid Power is already lined up to provide the batteries for future EVs from Ford and BMW as well as the major Korean brands via it’s joint venture with SK (more on that later).
How does Solid Power compare to the competition
The company that most people are aware of in this space since it went public first is of course Quantumscape ($QS). There are two ways to compare Quantumscape and Solid Power, first by their respective technologies and second by how they are currently trading in the market and by both these measures Solid Power is a clear winner.
- Quantumscape only tested their batteries to 800 cycles, while Solid Power tested theirs to 1000, and at 45 degrees Celsius as opposed to Quantumscape’s 25 degrees Celsius while maintaining >80% capacity retention.
- Solid Power has recorded 650 cycles with a 2C-rate fast charge occurring during every fifth cycle in near room-temperature conditions, whereas most of Quantumscape’s published numbers were only performed at <=1C rates, suggesting that Solid Power batteries are more efficient at quick-charging, as much as twice as efficient. Quick charging is a huge requirement for battery technology.
- Quantumscape is struggling with at-scale production and rollout strategies, whereas Solid Power is going to market with those problems solved and partners in place to hit the ground running.
The nice thing about Quantumscape going public first is it gives us a look at how receptive the market is to a solid state battery play.
$QS Chart
As we can see from the $QS chart it also meandered along around $12 going into merger before rocketing to a high of $114.77 and then eventually settling in the $20 – $40 range. At Black Friday close of $30.64 $QS had a market cap of $14.6B.
Solid Power is going public at a pro-forma enterprise value of $1.2B at $10 per share. That means that $QS post merger valuation is trading at a 12.1x premium to $DCRC pre-merger and some simple math would then tell us that for $DCRC to trade at market cap parity to $QS the stock would need to rise to $120 per share a 10x return from its current price. Now if we include cash , of which Solid Power is getting a lot from going public, we bump our valuation up to $1.8B implying a potential move to $81 per share or a 6.6x return from current price. What about using price to earnings multiples you say. Well neither of these companies has gone to market yet and it looks to me like Quantumscape is overpromising and Solid Power is under-promising their future sales so yes you could argue for only a 3x return using a future earnings multiple comparison so lets keep that for our bear case.
Another major competitor to Solid Power is SK Innovation, the battery manufacturing arm of Korean conglomerate SK and the world’s 4th largest battery manufacturer. SK Innovations, however, signed a joint development agreement with Solid Power in October whereby Solid Power will help SK Innovation develop solid state batteries for the Asian market. SK will invest $30 million into Solid Power as well as paying them a licensing fee on all their batteries and they expect this joint venture to cut their solid state battery launch window by 2 years.
SK saw the writing on the wall, that Solid Power is way ahead of the pack and if they want to stay competitive they needed to get access to their R&D.
SK is investing $2.6B in a battery factory in Georgia to build NCM batteries for the initial run of Ford F-150 pickup trucks but you can bet this factory will be designed so that it can easily swap to manufacturing Solid Power’s solid state batteries as soon as they are ready to go to market. Solid Power gets a fat royalty on every battery sold while SK fronts all the capital. I think this is an excellent business strategy by Solid Power versus Quantumscape trying to do everything themselves. (Source: https://insideevs.com/news/508616/ford-skinnovation-battery-jv-blueovalsk/)
The final major competitors in this space are LG Energy Solutions and Samsung SDI Co., but without access to Solid State’s technology they are not expected to have commercial solid state batteries available on the market until 2027-2030.
Bear Case:
I am obviously bullish on this company but no investment is without risks. While Solid Power has so far met all its milestones they are still a year out from initial production and 2 years from large scale commercial deliveries. As with any pre-revenue play these timelines could slip and everything could get pushed farther out leaving you to hold this for longer than you may have hoped for. They may also have issues like many manufacturers do (*cough Tesla*) ramping up production as fast as they hope.
This is also a SPAC that has not yet merged and that is why we are able to buy it at such a discount currently. SPAC mergers have blown up close to the last minute in the past and it’s not impossible that it happens here but with people already voting and the merger meeting set for 12/7 it’s unlikely something will derail us at this late stage. Another issue you sometimes run into with SPAC mergers that have heavy retail involvement is that not enough people cast their votes to meet the merger threshold. When this has happened in the past the stock typically sells off a bit as they reschedule a second vote and do a hard push to get shareholders to send in their yes votes. I have never seen a vote ultimately fail on this they always get it done on the second go around.
Position and Disclaimers:
I have an economic interest in the success of Solid Power. I am currently long 12,000 commons and 20,000 warrants. I am not a financial advisor and all users should complete their own due diligence
TL;DR: Solid Power has amazing potential with solid partners and tech. PT $30 low case, $81 mid-case, $120 high case
References:
Solid Power Investor Presentation: https://www.sec.gov/Archives/edgar/data/1844862/000119312521190525/d124653dex993.htm
Bloomberg Article 10/28/21 SK Targets New EV Battery Technology Two Years Ahead of Rivals:
Press Release 10/27/21 Solid Power Partners with SK Innovation to Jointly Produce All-Solid-State Batteries:
Solid Power Federal Contract Awards:
https://govtribe.com/vendors/solid-power-inc-dot-6lyk5#related-federal-contract-awards-table
Ford EV projections: https://www.msn.com/en-us/money/companies/ford-plans-to-increase-ev-production-to-600000-vehicles-by-2023/ar-AAQSlV5
Germany all electric by 2030:
https://www.lifegate.com/germany-electric-cars
SK-Ford battery MOU:
https://insideevs.com/news/508616/ford-skinnovation-battery-jv-blueovalsk/
This article was written by u/chris_ut
