I pause this story on Kensington Capital Acquisition Corp. (NYSE:KCAC) to announce that in a reverse merger, I shall acquire myself. Wait ’til you see the writing I produce under this new arrangement! Well, not really. (For starters, many have their doubts as to the writing I could produce under any arrangement.) But perhaps I’ve made a point: Special purpose acquisition companies — SPACs for short — have become so much the rage that Kensington Capital stock joins a long line of investments that seek to fundraise for fledgling companies.
Right now, SPACs about to close their deals include Spartan Energy (NYSE:SPAQ) with electric vehicle maker Fisker; DiamondPeak Holdings Corp. (NASDAQ:DPHC) with another EV company, Lordstown Motors and Landcadia Holdings II (NASDAQ:LCA) with Golden Nugget Online Gaming. Add to the list of SPAC fans Virgin tycoon Richard Branson, who on Oct. 1 unveiled VG Acquisition Corp., which seeks to raise $480 million to buy an unspecified consumer-facing industry in the U.S. or Europe.
So what is Kensington Capital after? Tech billionaire Bill Gates could tell you. Eventually, Kensington Capital stock will perform its reverse merger with QuantumScape, a battery startup that Gates backs. Now that’s interesting: a SPAC to provide batteries for EVs, a sector with plenty of SPACs itself.
So where’s the juice? Given that QuantumScape trades in a brand-new technology, that question isn’t the easiest to answer.
How Solid Is the Solid-State Battery Ballyhoo?
Just days ago on Oct. 15, Kensington Capital filed with the Securities and Exchange Commission a Form 425, a prospectus that discloses information on the proposed merger. This filing came with a slide show, perhaps lifted from a nifty PowerPoint. And if power is the point of Kensington Capital stock, then just what will a QuantumScape battery do — or purport to do — that makes Bill Gates different from the Energizer Bunny?
The answer: apply solid-state technology. I confess, this for me conjures images of a battery that doubles as a transistor radio. But we’re actually talking about an energy cell that gets rid of the liquid, or what the techies like to call the “anode host material.” The result in QuantumScape’s case promises to increase energy density “88 percent relative to a conventional lithium-ion battery,” Wccftech reports. It would also mean a 0-to-80% fast charge in 15 minutes.
Yes, but: What do the high-tech pundits contend? Because at present, there’s barely any data to go on in terms of, say, share price history. Since pulling out of the garage in September, Kensington Capital stock has shot up 48%; it trades at $14.76 per share. But from mid-September, it’s off 21%. Training wheels, anyone?
Kensington Capital Stock and High-Energy Hype
In a SPAC world that’s too often as slippery as snake oil, let me give you some straight talk: No SPAC, not a single one, will shy from visions of the future bright enough to put stars in the eyes of Capt. Kirk and Mr. Spock. Now Spock being the logical Star Trek dude he is, he’d probably counsel investors gaga for Kensington Capital stock as follows: “Cool your jets, cat.”
That’s exactly what I’m saying here. True, Gates wants a carbon-free future and his name recognition alone will do wonders once KCAC and QuantumScape become one. But whatever money he has behind this, rest assured it’s chump change compared to his net worth ($102 billion). We’re talking about a man who just spent $43 million on an oceanfront home in Del Mar, California. If this solid-state battery thing turns out to be a moonshot gone south, he’ll be no worse off.
Meanwhile, the EV battery market isn’t exactly open beachfront property. As my InvestorPlace colleague Josh Enomoto pointed out recently, everyone’s trying to make one, no one has yet delivered one, and no one knows how cheap it will be once it hits the market…or how readily available…or when it’s going to happen. And of course, absolutely no one is going to try to get in on the chase in the meantime. Yeah, right.
Josh concluded that it was OK to “be skeptical about Kensington Capital Stock,” and it’s a fascinating bit of timing that just after his piece ran, KCAC began to hit the brakes pricewise. As for me, a veteran of the restaurant business, I can tell you a) no eatery opens without great fanfare; b) everyone hopes to hit it big and predicts as much; and c) “60 percent of new restaurants fail within the first year,” jumping to 80% that shutter before their fifth anniversary.
What does that have to do with electric vehicle batteries? Everything. For such failure rates run endemic among tech startups too, and QuantumScape doesn’t get a pass. Maybe this one shall prove to be a unicorn. If it does, go get me that crystal ball so I can look two or three years out, while the other unicorn wannabes beg for my attention and my money. Otherwise, there’s no current in this battery for me, at least currently.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.