Solid Power went public via SPAC (DCRC) on Dec. 7 and has sold off furiously ever since. We are buyers of the warrants (SLDPW) below $3, simply based upon the ~$8 billion gap between SLDP's valuation and its only other public peer, Quantum Scape (QS). We expect SLDP, and the underlying warrants, to close the gap once the broader small and mid growth cap selloff ends -- buy in blocks or wait until we get some broader market resistance, as this stock will not be able to close this obvious valuation gap amidst a broader market selloff.
Company Overview
Solid Power is an industry-leading producer of all-solid-state rechargeable batteries for electric vehicles and mobile power markets. Solid Power replaces the flammable liquid electrolyte in a conventional lithium-ion battery with a proprietary sulfide solid electrolyte.
Solid-state batteries have been viewed as the next frontier in the world of EVs, as they will allow for the following:
- Double the range of current lithium batteries
- Solid state batteries are not volatile, like their liquid counterparts (they won't catch on fire during accidents)
- Cheaper manufacturing at scale -- Solid Power believes that their technology can bring down the cost of an EV battery pack from $142/kWh today to as low as $85/kWh. With batteries as the single most expensive component of an EV, bringing down costs is an incredibly important factor to increasing EV sales and adoption from customers.
- Double the battery life
The total addressable market (TAM) for solid-state batteries is estimated to be roughly $230 billion by 2030, meaning there is lots of room to run for SLDP and its ~$1 billion valuation.
Key Investment Points
SPACs have taken a beating over the past few months, as investor sentiment has soured on this new workaround to take companies public without the hassle of the typical IPO process. One of the unique aspects of SPACs is they allow retail investors the opportunity to invest in warrants, which we almost always to prefer to invest in over the direct equity whenever possible (they help us generate leverage by taking on minimal time risk). SLDP has warrants available, which we have been accumulating since $2.80:
- Strike Price: $11.50
- Expiration Date: 3/19/2026
- Warrant Price (1/10/21): $1.95
- Stock Price (1/10/21): $7.42
- Callable?: Once it trades for 20 consecutive days at a price of $18.50 or higher, SLDP can call them if they choose to, with a 30 day advance heads up warning... We will send out an alert if SLDP ever chooses to call their warrants back!
QS is SLDP's only public peer at the moment (SES is coming public via another SPAC (IVAN) later this year). QS went public late 2020 and had a much friendlier initial reception than SLDP experienced. The stock immediately got squeezed to ~$120 from ~$12 as investors gobbled up shares of the next "big thing" in EVs, bringing the total valuation of the company to almost $50 BILLION. Once the hysteria died off, the stock settled back into the $20's per share by August of 2021. This put the valuation of QS around $10 billion.... QS produces a great battery with its proprietary ceramics and gel (not fully solid state because of this), with on-target lab results, especially in cold temperatures. However, QS is a long way out from producing their batteries at scale. SLDP, on the other hand, has developed its business to make use of existing factories, processes, and equipment for traditional lithium-ion batteries (with very little adjustment) to manufacture its solid-state batteries. This gives the company a huge cost advantage and a clear path to being first to market.
* QS has met solid resistance around the $20 mark, helping to solidify it's $10 billion valuation despite significant revenue being 5 years out.. much like a biotech with solid data readouts. This helps embolden our thesis that this valuation makes more sense for SLDP to come up to, rather than QS suddenly shedding 80% of its value (source: Seeking Alpha)
SLDP is ahead of all other solid state battery companies when it comes to commercializing their battery, as they developed their battery around manufacturability. Roll-to-roll manufacturing is the premiere battery manufacturing method and Solid Power has adopted it for its own manufacturing process. Since 2019, Solid Power has been operating its pilot plant, updating it to a continuous manufacturing process early in 2020. The facility is capable of an annual output of 6.5 MWh per year, which is a substantial level for a developmental technology. Most importantly, again, is the company's ability to successfully demonstrate its ability to utilize existing battery manufacturing techniques to produce its product at scale.
Two of the largest OEMs in the world, Ford and BMW, are backing SLDP already, providing them with ready-made customers once they begin manufacturing. In fact, SLDP will be delivering batteries to Ford and BMW for testing later this year.
Ford has committed to a joint venture with Solid Power and plans to eventually incorporate their batteries into its EVs. Ford is projecting that it will be producing 600,000 EVs by 2023 making Ford the second largest EV producer after Tesla.
"Another major competitor to Solid Power is SK Innovation, the battery manufacturing arm of Korean conglomerate SK and the world’s 4th largest battery manufacturer. SK Innovations, however, signed a joint development agreement with Solid Power in October whereby Solid Power will help SK Innovation develop solid state batteries for the Asian market. SK will invest $30 million into Solid Power as well as paying them a licensing fee on all their batteries and they expect this joint venture to cut their solid state battery launch window by 2 years... SK saw the writing on the wall, that Solid Power is way ahead of the pack and if they want to stay competitive they needed to get access to their R&D."
My Favorite Links
From folks much smarter than I....
- Fairly neutral overview of SLDP and it's vasty potential vs. risks of investing in a company still run R&D phase
- Interesting that he ran a DCF on a pre-revenue company using a mix of their projections and defensible assumptions (take this analysis w/ a major grain of salt)... "The implied enterprise value from the proposed transaction is about $1.2B. Given that the market cap of the closest competitor, QuantumScape, is around $10 B, the implied enterprise value is substantially under the value of QuantumScape. Utilizing the expected EBITDA of $480 M in 2028 with a growth rate of 60%, the average WACC of the top companies in the S&P 500 (6.6%), and an assumption of zero growth after 5 years, the DCF model estimates the market cap around $45.8 B, which presents substantial upside from the current level. However, the pro forma projection and the DCF estimation include a lot of assumptions and best possible scenarios."
- Bullish overview of the manufacturing advantages SLDP has
- Good read for more of the science behind the battery
- Encouraging quote -- Volta Energy Technologies, a company focused on investing in energy technologies and partner of Solid Power, commented on the progress announced:
"Volta is constantly on the lookout for innovative, EV-enabling batteries that have a clear path to market. This is the most commercially advanced solid-state lithium metal technology we have seen. Solid Power's proof of scale-up is a differentiator that we are excited to invest in."
- No, this is not a Wall Streets Bets article.. this is really good DD from a guy on Reddit with lots of great links to other articles and citations
- His rationale for investing in this over other EV plays is similar to mine.. the valuation gap simply makes no sense and provides a margin of safety to an otherwise risky investment
- Solid comparison chart of QS vs SLDP re: battery performance
- Read through the comments as well
- The most important presentations for obtaining key data come directly from the companies, so it's imperative one read through 10Ks, investor presentations, etc. before deciding to invest a substantial amount
- This presentation provides an in-depth overview of key partners, nature of strategic relationships, progression of R&D, technological projections/key milestones and financial projections
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