Continuing the trend of companies poised to benefit from the electric revolution, Quantumscape (SPAC deck) is working on developing a next generation battery. The electric revolution is one of my favorite areas to invest in because there’s still lots of opportunities for value creation. It’s also incredibly good for the planet, and fossil fuels suck.
Solid state lithium metal batteries are hypothesized to be the next evolution of lithium ion. They promise significantly higher energy density, faster charging, and lower cost. The term solid state comes from removing the liquid electrolyte.
Quantumscape has been working on such a battery chemistry since 2010. Historically it has been very challenging to bring a new battery chemistry to market and just about everyone who has tried has failed. It seems likely that Quantumscape will fail as well, but there are a couple things that make it worth considering.
Volkswagen has made a large commitment to Quantumscape becoming one of it’s largest shareholders. Herbert Diess is one of the only traditional auto CEOs that truly understands the electric revolution.
JB Straubel is on the board of Quantumscape, he was the cofounder / CTO of Tesla and very involved in their technology and batteries.
Quantumscape is backed by John Doerr and Vinod Khosla as well as Bill Gates.
I’ll be the first to admit I’m not an expert in battery chemistry. My basis for believing this isn’t a total scam is mainly based on the involvement of JB Straubel and other prominent backers. Relying on others is a dangerous way to invest, but this is another company I only have a small amount of capital in that I am willing to lose.
Valuation
Quantumscape went public at a 3.4b valuation. Their plan is to be able to start producing batteries by 2024 producing 91 GWh a year by 2028 with 6.4B a year in revenue in 2028. If everything goes perfectly, this could easily be a 100B company by 2028. CATL, which makes lithium ion cells, has a market cap of ~230b. So if a new better chemistry was manufactured at scale it would likely be worth more than that.
Quantumscape quickly traded up and December of 2020 was valued at ~45B and then crashed all the way back down to 6.4B and now currently sits around a 16B valuation.
This is still quite high based on the risks involved. The technology could turn out not to work at scale and this could easily trade to 0.
I built a position at ~$25 a share. I’m hesitant to buy more at a 16B market cap, but I might pick up some more shares if this craters again.
In general this will be a highly volatile stock as it’s trading based off of 2028 potential. It will be highly affected by any change in interest rate policy, or macro economic factors, as well as core performance toward their objectives.
Disclaimer: This does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this article should consult with his or her advisor.