Obviously, the novel coronavirus will dominate how the history books perceive 2020. Taking that aside, though, this year could be known as the advent of mass-scale electric vehicle competition. However, some key concerns prevent consumers from going all in, namely price and practicality. Understanding this, Kensington Capital Acquisition (NYSE:KCAC) is the latest special purpose acquisition company (SPAC) to offer a groundbreaking solution. Not surprisingly, Kensington Capital stock has soared since its recent debut.
First, a little administration backdrop. As a SPAC, Kensington is initiating a reverse merger with QuantumScape, essentially taking the latter public via a “backroad.” Thus, while I’m technically focusing the discussion on Kensington Capital stock, the reality is that QuantumScape, a lithium-metal battery manufacturer, represents the heart and soul of this distinct acquisition vehicle.
However, QuantumScape is unlike other battery plays that you may have seen because it focuses on research and development of solid-state batteries. Long story short, this is the holy grail of EVs.
As I mentioned above, a roadblock against mass integration of EVs is price. Yes, over the long run, EVs are cheaper than equivalent combustion-engine cars. But even with Tesla’s (NASDAQ:TSLA) cheapest Model 3, a $38,000 car is nothing to scoff at.
Further, practicality is another major concern. We’re not just talking about range. Instead, the lengthy waiting period at public charging stations is a drag compared to the splash and dash that we’re used to at gasoline stations.
However, solid-state batteries completely upturn this narrative thanks to higher energy densities that facilitate a trifecta of fast-charging, greater range, and lower cost. Thus, the promise of EV nirvana has skyrocketed Kensington Capital stock.
But is this too good to be true?
Focus on the Science, Not the Prize of Kensington Capital Stock
When I consider other talking points regarding Kensington Capital stock, I see significant content volume dedicated to the underlying company’s potential. However, I would like to gently suggest that analysts discuss the science of solid-state batteries. Frankly, everyone knows the potential of QuantumScope if it succeeds in its mission – it’s called the moon.
But the longer-term profitability depends on the practicality of solid-state batteries. Last year, the Faraday Institute analyzed the developmental race toward solid-state batteries. While the organization recognized its paradigm-shifting potential, it noted the bane of this innovation: “solid-state batteries can fail after cycling (repeated charging and discharging) at practical currents”
To briefly summarize, within the solid-state battery architecture, the solid electrolyte and lithium anode form voids – or “empty” spaces – during stripping, or battery discharges at practical currents. With additional stripping, the voids become bigger, leading to reduced contact area. Eventually, the structure short circuits, causing battery failure.
Now, if you think this problem is limited to the Faraday Institute, think again. Automotive giant Toyota (NYSE:TM) has been hard at work developing its own solid-state batteries. Indeed, it was supposed to debut a prototype of the technology at the Summer Olympics before the coronavirus imposed its own scheduling adjustments.
Though exciting, Toyota also ran into the same dilemma: according to CarandDriver.com, the solid states “tend to fail after repeated charging.” So, to buy Kensington Capital stock is to believe that QuantumScape has succeeded where others – particularly industry giants – have failed.
Be Careful About Solid-State Hype
This isn’t to suggest that Kensington Capital stock won’t fly higher from here. Because of the tremendous enthusiasm for EVs and associated businesses, KCAC could easily move to new plateaus. But that may be more a result of hype than anything substantive.
Honestly, I believe automakers are savvy to this marketing-friendly environment. For instance, Mercedes-Benz made headlines recently when it announced a production city bus that is equipped with solid-state batteries, a first in the world.
When that declaration was made, everyone’s eyebrows were immediately raised. For all the work that Toyota has done on solid-state batteries, the Japanese icon stated that limited manufacturing was on track for 2025. I know the Germans are a class above, but are they that good?
Turns out, there’s more to this story. While Mercedes’ bus may indeed be powered by a solid-state battery, its charging capacity is “restricted.” According to Autoblog.com, it’s so restricted that Mercedes’ traditional lithium-ion battery charges quicker.
I mention this because you don’t want to rush into Kensington Capital stock just because the underlying firm is developing a solid-state battery. In reality, that battery must achieve all or at least most of the promised benefits that solid states hold. Otherwise, as Mercedes has discovered, you’re better off going with platforms that work comprehensively.
Being Skeptical Is Okay
While I appreciate the temptation to buy Kensington Capital stock ahead of the herd, here’s another reality check. For years, Panasonic (OTCMKTS:PCRFY) has partnered with Tesla to produce is EV batteries. The company knows a thing or two. Yet it believes solid-state batteries could be a decade away.
Again, it’s possible that QuantumScape has figured it all out. And even if they haven’t figured it out, extreme bullishness could drive up Kensington Capital stock. But if the science doesn’t back up the technicals, KCAC could just as easily collapse.
Unless you’re a gambler, I think skepticism is the best course of action. For one thing, you have scientific institutions recognizing the extreme difficulties in developing a genuine solid-state battery. And the other glaring issue is that major manufacturers are still trying to find the key.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.