So far, 2020 has been the year of special purpose acquisition company (SPAC) deals. This is especially true in the electric vehicle (EV) space. And, one of the latest deals to hit the street involves Kensington Capital Acquisition Corp (NYSE:KCAC). The SPAC, or blank-check company, is acquiring privately held QuantumScape. Kensington Capital stock soared on the news. But that’s just the start.
Sure, rallying more than 90% from where it was pre-merger announcement, this SPAC play looks pricey at first glance. Yet, when you dive into its merger partner, it’s clear there’s ample potential for shares to move even higher once the deal closes.
Why? QuantumScape doesn’t build electric vehicles. But, what it does build could be a game-changer for this emerging industry. I’m talking about the company’s solid-state batteries. Also known as SSBs, these batteries offer many advantages to what’s currently being used in electric cars (lithium-ion batteries).
Already partnered with Volkswagen (OTCMKTS:VWAGY) to produce SSBs, it’s already crushing it right out of the gate. And, with subsequent deals, the company’s star will continue to rise.
And so could Kensington Capital stock, which will soon be trading under the QS ticker symbol. In short, don’t split hairs over the recent rally. It’s time to dive into this before it completes the merger.
Kensington Capital Stock, QuantumScape and SSBs
Why do I find this to be such a great opportunity? As I mentioned above, there’s big potential for SSB technology to revolutionize the electric vehicle space. How so? As QuantumScape founder Jagdeep Singh explained to Reuters, the company’s solid state lithium-metal battery “speed[s] up the recharge to 80% capacity in just 15 minutes.” Not only that, SSBs could be a lower-cost, higher power density battery solution for electric cars and trucks.
In short, this is the kind of technology it will take to make EVs more competitive with traditional gasoline-powered vehicles. With this in mind, it’s clear why Volkswagen has invested heavily in the venture. Not only that, German auto supplier Continental AG, as well as Chinese auto giant SAIC have invested in QuantumScape.
Post-deal, the combined company will have more than $1 billion in “dry powder” to commercialize its technology. Granted, “cashing the check” is several years away. The company doesn’t expect to bring its SSBs to market until at least 2025.
Yet, that doesn’t mean Kensington Capital stock, soon to be QuantumScape stock, will sit still for long. Even after its epic rally, shares have plenty more runway. Not just the near-term, but in the long-term as well.
Why the Recent Run-Up Is Just the Start
Investors may have bid up Kensington shares on news of this deal. But, don’t take the recent euphoria to mean the ship’s sailed. Sure, given this company is still in the pre-revenue stage, its current implied valuation ($3.3 billion) looks rich. Even as many other EV startups, which have yet to bring a product to market, trade at much higher valuations.
But, today’s value does not fully price-in the upside potential from the Volkswagen venture. Given it’ll be years before its SSBs start being placed in vehicles, shares have room to head higher as the company makes more progress.
Yet, that’s not the only catalyst in the near and long-term. The potential to sign on additional automakers is another factor that could move the needle. And given the automotive background of Kensington’s SPAC sponsor, this deal offers more than just a means for QuantumScape to go public.
As Kensington CEO Justin Mirro said, “While there’s a lot of other SPACs out there to claim they’re automotive experts maybe for the last 30 days, we’ve been automotive experts for the last 30 years.” Mirro, an automotive engineer turned investment banker, could have the connections needed to lock down more partnership deals.
Whether its progress on its current prospects, or the sign-on of new major customers, there are many potential developments that could help put points into Kensington stock. Simply put, there’s no reason to think shares have topped out just yet.
In short, shares remain a screaming buy, even at today’s prices.
It’s One of the Best EV Opportunities
Kensington Capital stock may have bolted out of the gate on the heels of its deal for QuantumScape. But, don’t think it’s too late to jump into shares. Buying today, even as the stock trades for nearly double its pre-merger price, still means you can get in on the ground floor.
Why? While the company already has secured a deal with a major automaker, more could follow in the coming years.
With SSBs potentially changing the game, Kensington Capital stock is one of the best EV plays out there.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, contributor to InvestorPlace, has written single stock analysis since 2016.