One of the SPACs to hit the market was Kensington Capital (NYSE:KCAC) becoming the blank-check company to merge with QuantumScape. The story behind QuantumScape is the quest for a better battery for electric vehicles (EVs). And that is making Kensington Capital stock attractive.
In a year punctuated by disruptions, reverse mergers have become uncommonly normal.
Whenever I write about a subject like EVs and charging stations, I have to remind myself of where I live. Suffice it to say, you don’t see a lot of EVs tooling around our small town. But that is changing.
I’ve noticed quite a few Teslas in recent month. And lo and behold we even have a Tesla charging station with room for four of the popular EVs to charge at one time.
So while the EV infrastructure may be more developed than I realize, I can still believe that it could be years before QuantumScape has a product ready for market.
Why Kensington Capital Is Relevant?
Simply put, the oncoming EV revolution has a battery problem. Companies like Tesla (NASDAQ:TSLA) are working on improving the existing lithium-ion battery, and it also is creating a solid-state battery of its own (albeit one that essentially ignores the QuantumScape design completely).
Other companies like Nio (NYSE:NIO) are coming at the battery problem from a different way altogether with its battery-as-a-service initiative.
But the simple fact is that lithium-ion batteries are the Achilles heel of the EV revolution. And that heel will only get more exposed as demand for electric vehicles increases. In the first place, consumers are already paying a premium to buy an electric vehicle. One reason for this is the battery.
Which brings up the second problem. Once the battery outlives its useful lifespan consumers either have to replace the battery (which can be expensive at today’s prices) or replace the vehicle.
There’s also the problem of our aging power grid which will only get more strained as millions of Americans are trying to recharge their vehicles.
So a battery that requires less charging and has the potential to last for a solid decade would be a game changer.
Lithium-Ion May Get a Tailwind
China has become a major geopolitical topic of debate. And one of the reasons is because the United States is now fully engaged in a race to lead the world in EV technology. Being the first to market with a solid-state battery would go a long way towards that aim.
A knee-jerk reaction would be that a Biden administration will be favorable to a company like Kensington Capital. Broadly I would say that is true. But I’m not so sure if that makes a case for KCAC stock in the next year or two.
In the first place, the technology is not ready. By the company’s own admission it will be 2025 before it will be commercially available. That leaves a lot of room for competition to increase.
I use “increase” intentionally because QuantumScape already has competition from companies like Toyota (NYSE:TM), BMW (OTCMKTS:BMWYY), and Hyundai (OTCMKTS:HYMTF) who are forming their own partnerships.
It also means that lithium-ion battery technology will continue to improve. If, as Joe Biden has stated, the goal is to transition away from fossil fuels, one way to do it will be to promote rapid acceptance of electric vehicles. And that means using the technology that is currently available (i.e. lithium-ion batteries).
Not an Investment You Can Set and Forget
Kensington Capital is not a bet on the future of electric vehicles. It’s a bet on a better future for electric vehicles. It’s also the furthest thing from a sure thing. Yes, the technology may be a game changer, particularly if QuantumScape can manage to be first to market.
But the field is crowded and the technology will have to clear numerous technical hurdles. At this point, Kensington Capital is a speculative buy. But with a good four years before the company is expected to bring a battery to market, it’s certainly not one you can put on autopilot.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.