This New Battery Could Be The Next Big Thing For EVs, And Your Portfolio

This New Battery Could Be The Next Big Thing For EVs, And Your Portfolio
Reda Farran, CFA

4 months ago5 mins

  • Solid-state lithium technology is being heralded as the holy grail of the battery industry, promising EVs significantly longer ranges, faster charging times, and an improved safety profile.

  • While solid-state batteries have had some basic technology challenges, they’re edging closer to commercialization. Advancements this year suggest a full-scale rollout late this decade.

  • There are several ways to invest in the technology, including via the firms that focus exclusively on solid-state batteries, the carmakers that are partnering with those companies or working on their own batteries, and the producers of lithium itself.

Solid-state lithium technology is being heralded as the holy grail of the battery industry, promising EVs significantly longer ranges, faster charging times, and an improved safety profile.

While solid-state batteries have had some basic technology challenges, they’re edging closer to commercialization. Advancements this year suggest a full-scale rollout late this decade.

There are several ways to invest in the technology, including via the firms that focus exclusively on solid-state batteries, the carmakers that are partnering with those companies or working on their own batteries, and the producers of lithium itself.

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Practically every automaker out there is betting that EVs are going to chauffer us all in the future, and that sure looks likely with wide swaths of the world moving to ban the sale of fossil-fuel-powered cars and trucks. But to really seal the deal on this global green transition, we’re going to need better battery technology. Fortunately, solid-state batteries could be it: the alternative solution has been revving its engine for years. And after a few recent breakthroughs, it might be time to consider investing in it…

What’s wrong with the batteries we have now?

Sure, lithium-ion batteries – the kind found in today’s EVs – are good and their prices have come down, but they still lag behind internal combustion engines across several performance metrics. And solid-state batteries could potentially close those gaps.

Batteries operate on a universal principle: they generate an electrical current by allowing a flow of charged atoms, known as ions, to move through a chemical substance called an electrolyte, traveling from one electrode (the anode) to another (the cathode). Solid-state batteries use a solid electrolyte instead of the liquid used by lithium-ion batteries. But the real step-change is in what that enables: lithium metal anodes. Replacing the heavy graphite that’s used in the current anodes would help double an EV’s battery range, in part because it would be so much lighter.

How lithium-ion and solid-state batteries work. Source: Murata.
How lithium-ion and solid-state batteries work. Source: Murata.

Solid-state lithium technology has long been heralded as the holy grail of the battery and EV industries. They overcome many of the performance shortcomings of today’s EV batteries. They can significantly increase range and slash charging times, plus they have longer lifespans, can better withstand subzero temperatures, and, conveniently, they don’t catch fire, making them much safer.

How far are solid-state batteries from commercialization?

Well, they’ve had some longstanding basic technology challenges, but they’re edging closer to a full-scale rollout, with some companies announcing good progress in 2023. This summer, for example, Toyota announced a major breakthrough in its solid-state lithium batteries with plans to come to market by 2027. The world’s best-selling carmaker said the advancement will enable it to halve the size, cost, and weight of its batteries, and allow its EVs to have a range of roughly 750 miles and a charging time of ten minutes or less.

Nissan and Honda are also pushing projects forward. The top three South Korean battery manufacturers – LG Energy Solution, Samsung SDI, and SK On – have each announced plans to develop solid-state batteries before 2030. Meanwhile, US startups QuantumScape (collaborating with Volkswagen) and Solid Power (collaborating with BMW and Ford) are aiming to commercialize their technologies around the same time. And Taiwan-based ProLogium, which has a deal with Mercedes-Benz, has ambitious plans to mass-produce solid-state batteries in the very near future.

The projected global market share of solid-state batteries. Source: Faraday Institution.
The projected global market share of solid-state batteries. Source: Faraday Institution.

What’s the opportunity here?

If these rollouts go to plan, solid-state batteries could disrupt the EV market and present a compelling investment opportunity along the way. Think about the value they present: they’d give EVs significantly longer ranges, fast charging times that are akin to filling a gas tank, and a safety profile that shrinks the risk of battery fires. As global demand for EVs revs up, driven by environmental concerns and legislative changes, solid-state batteries could become the new standard – and that kind of growth would be awfully tempting to have in a portfolio.

There are several ways to invest in the technology. QuantumScape and Solid Power are pure-play companies that are exclusively focused on developing and selling solid-state batteries, and both trade on the Nasdaq. But proceed with caution: just like any firm involved with a new, unproven technology, these two come with a lot of risk. Neither is currently profitable or generating any cash (in fact, QuantumScape has zero revenue). They still have to prove to investors that they can not only crack the technology, but also successfully scale up manufacturing – no mean feat, as Tesla knows all too well. That’ll be key to bringing costs down: solid-state batteries are currently more expensive to produce than traditional ones – mostly because the latter benefits from economies of scale.

Lithium producers could be another way to invest. That’s because solid-state batteries use up to 35% more lithium – a key metal that’s seen its price quadruple over the past three years. The lithium market is dominated by five big firms: Albemarle, SQM, Ganfeng Lithium, Tianqi, and Livent. All five have seen their share prices – and, consequently, their valuations – come down this year, with the price of lithium falling by around two-thirds over the same period. But if you believe lithium prices will stabilize or rebound from here, then these stocks could offer a potentially attractive entry point. You can gain exposure to a diversified lot of lithium and battery-focused stocks through the Global X Lithium & Battery Tech ETF (ticker: LIT; expense ratio: 0.75%).

Finally, you could consider investing in some specific carmakers to gain exposure to solid-state batteries. We already mentioned Toyota’s announcement of a major breakthrough this year, with plans to fully commercialize the technology by 2027. And Nissan and Honda are also advancing their projects. In fact, solid-state batteries could be key to the revival of Japanese carmakers, who have so far lagged behind the competition when it comes to rolling out EVs. Other auto firms collaborating with solid-state battery startups include BMW, Ford, Volkswagen, and Mercedes. But the first carmaker to effectively deploy solid-state batteries will gain a meaningful edge, wowing the market with EVs that have extended range, quicker charging, and better safety.

Strangely, Tesla has done little to advance solid-state technology, and no one is 100% sure why. The company may be getting complacent, given its wide lead in lithium-ion batteries. Or maybe CEO Elon Musk doesn’t think an EV range in excess of 400 miles is all that important. Or maybe there’s some other reason. Time will tell how things will shape up for the firm that brought EVs to the mainstream.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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