How One Secretive Bill Gates-Backed Company Has Left Tesla Looking Out-Of-Date

How One Secretive Bill Gates-Backed Company Has Left Tesla Looking Out-Of-Date
Reda Farran, CFA

about 3 years ago3 mins

Mentioned in story

What’s going on here?

Practically every automaker out there is betting that electric vehicles (EVs) will be the future, and it sure looks likely: large swaths of the world are moving to phase out gas-powered cars and trucks. But if full-scale fossil-fuel-free auto adoption is to become a reality, we’re going to need an entirely new type of battery technology. Despite significant improvements over the past decade, those currently found in EVs still trail internal combustion engines on pretty much every performance metric. The theoretical solution has been apparent for some time: a so-called “solid-state battery”. For four decades, however, no one was able to make a practical breakthrough. Until earlier this year, that is – when a secretive startup called QuantumScape claimed to have cracked it. And now it’s got the data to back that up.

What does this mean?

QuantumScape, spun out from a research program at Stanford University in 2010, appears to have assumed pole position in the race to develop solid-state lithium technology – the holy grail of the battery industry and therefore of EVs. That’s because such batteries bring several key advantages that should help accelerate mass EV rollout.

For starters, solid-state batteries allow EVs to travel a whopping 80% further than with existing tech, significantly increasing their range. They also charge much faster, reaching 80% capacity in just 15 minutes. Higher energy density also means their production cost per unit of energy is lower, since they use less raw materials. And the benefits don’t stop there. Solid-state batteries last longer than traditional batteries, affording hundreds of thousands of miles of driving. They’re non-combustible and therefore safer (remember those videos of parked Teslas suddenly catching fire?). And they’re more versatile because – unlike traditional batteries – they can operate perfectly fine in subzero temperatures.

Solid-state battery diagram
It’s got what plants crave… (Source: Samsung/Idiocracy)

These aren't hypothetical advantages, but actual feats revealed this week in QuantumScape’s latest performance data – with the results receiving praise from experts including a Nobel Prize in Chemistry winner and the co-founder of Tesla itself, who hailed a “major breakthrough.” The commercial consequences could be substantial, giving automaker clients a huge competitive edge in the hotly contested EV industry.

It’s no surprise, then, that QuantumScape numbers Bill Gates and Volkswagen among its investors. The German car company is also a manufacturing partner, with an eye to using QuantumScape’s technology in its future EVs. That could represent a lot of revenue for the battery firm, given that Volkswagen aims to capture 20% of global EV sales by 2025 and produce 26 million EVs by the end of the decade.

Why should I care?

The good news is that you can now invest in QuantumScape. It became a publicly traded company (ticker: QS) after completing a “reverse merger” with special purpose acquisition company (SPAC) Kensington Capital Acquisition last week. (Search the Finimize app for more on SPACs.) The deal brought QuantumScape an extra $700 million in funding – it now has more than $1 billion to spend on bringing its groundbreaking tech into commercial production.

I should, of course, add the usual disclaimer about doing your own research before investing in QuantumScape (or any company for that matter). Like all stocks, it comes with risks. For starters, this week’s performance data was based on tests using a miniature version of QuantumScape’s battery, little larger than a playing card, rather than the hefty battery pack needed for an EV. So the company still has to prove it can successfully scale up manufacturing – no mean feat, as Tesla knows all too well.

QuantumScape doesn’t expect to be producing and selling batteries en masse until 2024. In other words, it’ll most likely have zero revenue for another 3+ years. And then there’s its valuation. Unsurprisingly, the company’s stock has soared since its listing last week – in fact, as of the time of writing, its market value is above the firm’s own estimation, as shown in this investor deck. New investors obviously aren’t buying QuantumScape’s stock based on its cash flow, but perhaps in the belief that the company could be the next Tesla. Only time will tell if that turns out to be true...

QuantumScape investor doc valuations
QuantumScape’s "enterprise value" (shares plus debt) is already more than $20 billion


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