SLDP - Buy Solid Power For The Battery EV Development

2023-03-09 07:32:43 ET

Summary

• Solid Power has tremendous potential in disrupting the battery EV market.
• The pre-revenue firm updated investors with its battery development in 2022.
• Two milestones in 2023 could jolt shares higher.

Investors seeking battery stocks for the electric vehicle industry may look at Solid Power ( SLDP ) and QuantumScape ( QS ). Readers seeking the details may look at this extensive article . From a stock trading perspective, Solid Power trades at a market capitalization of $513 million, with bears holding a 6.84% short float (data compiled from FINVIZ).

QuantumScape trades at eight times the size at a $3.32 billion market capitalization. Bearishness is even higher with a short float of 22.68%.

Investors should not ignore the bearish action. Bears have a big bet against stocks like Carvana ( CVNA ), a used car firm that lost 94% of its value from its one-year high. More recently, in the cryptocurrency market, Silvergate Capital ( SI ) validated the bear thesis. The firm announced it would wind down operations and liquidate Silvergate Bank .

The modest short float against Solid Power suggests that clean energy investors should consider a position. The company said that its production facility is on track to be commissioned in Q1/2023. It started EV cell production in the last quarter (Q4) and expects to deliver to partners this year. Secured funding from the Department of Energy is another positive development.

2022 Highlights

Solid Power wrote in its full-year report that it advanced its electrolyte and cell development in 2022. It invested in its operational infrastructure, planting the seeds to reach production capability and to produce batteries for BMW ( OTCPK:BMWYY ).

The EV battery developer is in the pre-commercial phase of product development. Investors should treat SLDP stock like buying emerging biotechnology firms. It will not post meaningful revenue. Instead, losses will continue for several quarters as it invests in investments, product development, scaling of operations, and research and development.

In 2022, Solid Power posted revenue of $11.8 million. Operating expenses were $59.1 million. It lost $9.6 million, or a loss of five cents per diluted share. The company ended the year with $496.1 million in total liquidity.

Opportunity for EV Investors

Solid Power invested in key production capabilities for electrolyte powder and EV cell manufacturing. This is the first step in achieving scaled electrolyte and cell development.

Receiving automotive qualification is the next step before the company work towards product commercialization. It delivered 2 and 20-amp-hour cells to its partners.

Last Dec. 2022, Solid Power deepened its relationship with BMW. After BMW establishes pilot lines, it will buy electrolyte for Solid Power. When BMW supplies a demo car, the firm may carry out a proof of concept.

Shareholders are betting that Solid Power will become a supplier of battery materials and technology. When customers validate its application, it will earn revenue by licensing its cell designs and intellectual property. This is a similar setup to that of Universal Display ( OLED ). OLED stock traded in a $25 - $40 range from 2012 to late 2015. As licensing revenue exploded higher, Universal Display traded as high as over $240 by 2021.

Investors cannot forecast a fair value for SLDP stock today. Instead, have the belief that sulfide-based solid state is a superior path for EV applications. The company said that this type of solid-state has a wide temperature performance and manufacturability. It faces few competitors since the industry lacks suppliers who commercialized the product.

2023 Milestones

Solid Power has two key milestones in 2023. Investors expect the company to report an improvement in key cell performance metrics. Jennifer Almquist, Investor Relations, said the metrics include energy density, pressure, cycle life, low-temperature operation, and safety.

Last year, the company reported yields that were lower than expected. In addition, demand for its 20 amp-hour cells required Solid Power to spend more time on that specification. Fortunately, the team changed designs. This increases the likelihood of the manufacturing of the 20 amp hour builds.

Solid Power's second key cell development milestone is delivering EV cells to its partners. The company is targeting a late 2023 delivery date.

Risks

The company may not grow its partner count. If it adds fewer new potential partners, it would weaken its addressable market. Still, it engaged in detailed discussions with its current partners to discuss the revenue from powder out of its new SP2 facility. This facility will increase Solid Power's capability to produce electrolyte at 2,500 kg/ month .

SLDP may run into issues as it scales above its 20 amp-hour cells. Any delay may discourage shareholders, causing shares to sell off. In the long term, the company will get a better sense of what its customers want. As a result, it will develop from 60 amp hours to 100 amp hours. This product mix will depend on future customer demand.

Your Takeaway

Solid Power has plenty of cash on hand. It has strong partnerships, especially with BMW. Macro investors who anticipate an economic slowdown may consider investing in Solid Power. The easing of the tight labor market will help the company hire the talented staff it needs to speed up its product development efforts.

Expect higher capital expenses related to the SP2 facility in the first and second quarters of this year. As costs ease and its revenue potential improves, investors who bought the stock at these levels will be rewarded.

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