QS - Solid Power Vs. QuantumScape: Solid-State Batteries Set To Power EVs

Summary

• Solid Power and QuantumScape are the only two pure-play solid-state battery stocks.
• Both companies have partnerships with some of the largest automakers in the world.
• QuantumScape expects commercial production from 2025 versus 2026 for Solid Power.
• This timeline is still fraught with risks, and the speculative nature of both cannot be emphasised enough.

Investors looking to gain exposure to the highly speculative but fundamentally revolutionary race to develop solid-state batteries for EVs really have two pureplay options QuantumScape ( QS ) and Solid Power ( SLDP ). There are other companies developing solid-state batteries like Mullen ( MULN ), Toyota ( TM ), and Dragonfly ( DFLI ) but this comes with other business operations that an investor might not want exposure to. What are the main differences between both and might an investor want to buy one over another?

Solid Power is the smaller of the two, with a market cap of $400 million and around 159 employees . The Louisville, Colorado-based company went public via a blank check firm back in December 2021. San Jose, California-based QuantumScape currently has a $2.3 billion market cap, has around 574 employees , and went public more than a year earlier by a blank check firm in November 2020. Both stocks have had similar drawdowns this year as a broad 'risk off' market sentiment saw investors flee to safety from more highly speculative and cash-burning companies.

Solid-state batteries have received a great deal of hype because of just how revolutionary they would be. Replacing the liquid electrolyte of a battery with a solid electrolyte will help form a new generation of batteries that are significantly more dense, non-flammable, and faster charging than competing lithium-ion battery chemistries.

I owned Solid State briefly for a few months immediately after it went public but sold out of the position to meet some portfolio margin requirements. My intention is to buy back into the solid-state dream through either Solid Power or QuantumScape sometime in the next year. This will only be once the current macroeconomic backdrop, currently defined by rising Fed fund rates and high inflation, has dramatically eased. Fundamentally, the market will likely continue to heavily discount the shares of both as long as the Fed keeps raising rates.

Capital And Momentum

Both are pre-revenue, with Solid Power last reporting its earnings for its fiscal 2022 third quarter. The core takeaway here is cash burn from operations plus capex of $24.5 million stood against cash and equivalents of $368 million as of the end of the quarter. Assuming this cash burn profile stays the same, Solid Power would have 15 quarters, around 3.75 years, of runway left. For some context, the company has guided for commercial production of all its EV cells to begin in 2026. QuantumScape also last reported earnings for its fiscal 2022 third quarter. The company held a cash and equivalents position of $1.15 billion against capex plus cash burn from operations of $110.45 million. This would mean a runway of around 10.5 quarters, around 2.61 years.

The liquidity position of both companies is important because they will likely both have to lean on secondary share offerings in the future to maintain their R&D spending and start more full-scale solid-state battery production.

Commercial Partnerships, Dendrite Growth And The Failure Of Past Efforts

Solid Power has partnered with BMW ( BMWYY ) and Ford ( F ) to bring its solid-state batteries to market. Solid Power recently expanded its deal with BMW, this will see Solid Power grant the German automaker an R&D license for its solid-state cell design. BMW will be able to recreate Solid Power's pilot production lines at its home facilities, with Solid Power supplying electrolyte material for the prototype cell production. As part of the agreement, BMW will also pay Solid Power $20 million through June 2024. The company delivered sample cells to BMW and Ford on schedule last quarter but faced quality issues with some of its commodity materials that have placed some uncertainty on its roadmap guidance.

QuantumScape is partnered with the largest automaker in the world by revenue, Volkswagen ( VWAGY ). The German behemoth has backed QuantumScape since 2012 and has one of the most aggressive roadmaps for new EV models with the view that it can start rolling models powered by QuantumScape solid-state batteries from 2025, one year earlier than Solid Power. These partnerships are critical for both to achieve commercial scale as they continue to develop their batteries. QuantumScape also has partnerships with several other automakers and is exploring the application of its technology to consumer electronics and other non-EV markets.

It's important to note that there are dozens of academic institutions and private startups chasing the solid-state battery dream. Indeed, MIT reported a dendrite breakthrough last month with its solid-state battery effort. This does not mean the battery is ready for commercialization but more broadly highlights that the field is not just for Solid Power and QuantumScape to own. Whilst none of these competitors will have the same commercial deals, these partnerships are built on performance milestones which can fail. In terms of which to invest in, Solid Power's Doug Campbell recently left the CEO position, citing his lack of manufacturing experience. QuantumScape is run by Jagdeep Singh, the founder and CEO since 2010. I think the reason for Doug's departure is quite vague, which opens up a level of uncertainty for the commons. Ultimately, this is a straight near asymmetric bet that will only really start to kick off once macro conditions improve. Hence, I'm neutral on both until this happens.

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