Kensington Capital Acquisition Corp. (NYSE:KCAC), which plans to tie the knot with the solid state battery company QuantumScape has been vying for attention. That’s good news for owners of Kensington Capital stock if the company, as planned, builds products for the electric vehicles on the drawing board at Volkswagen (OTCMKTS:VWAGY).
At this point, you’d need your own personal Energizer Bunny to track all the companies trying to improve, pioneer and perfect green battery technology. So far the darling of 2020 has been Plug Power (NASDAQ:PLUG), with shares up more than 400% and in virtual lockstep price-wise with Tesla (NASDAQ:TSLA). KCAC stock may be able to ride that wave, too.
But one puzzling symbiosis between the electric vehicle sector and the battery companies that hope to serve it involves speculation high enough to give you a nosebleed.
When you think about it, even Tesla qualifies because its price-to-earnings ratio is perilously high, at 830-to-1. (In other words, investors pay $830 for every dollar Tesla earns.) Is Kensington Capital any different? Any safer? Or as investments go, is it an adrenaline junkie’s bungee jumping dream?
To begin with, it’s technically not a battery company yet but rather a special purpose acquisition company, or SPAC. These exist to fundraise for fledgling companies and eventually disappear through what’s known as a “reverse merger.”
So a share of Kensington Capital stock will at some point turn into QuantumScape stock, which will trade under the ticker QS. At present, does Kensington Capital stock boast some rockin’ high voltage for the plugged-in investor? To find out, we must start by looking at QuantumScape itself.
A Bill Gates Darling
QuantumScape has a valuable ally, financially and celebrity-wise, in Bill Gates. The billionaire brains behind Microsoft (NASDAQ:MSFT) is a backer of QuantumScape and, I might add, knows a thing or two about high-tech. What’s got America’s Most Famous Geek geeked out is the promise of solid state battery technology.
Here’s how it works: Solid state energy cells don’t need liquid, known in the lab as “anode host material.” QuantumScape claims to have spent more than $300 million to develop them.
I’m guessing that if translated to AA cells, that’s enough to flood every battery display in every pharmacy from Manhattan to Magnet Cove, Arkansas, population 5. (Too small for a pharmacy, you say? Given a $300 million R&D expenditure, I’ll bet they can get all the QuantumScape cells they want.)
The resulting product in QuantumScape’s case promises to increase energy density by 88 percent when compared to lithium-ion batteries, and deliver a fast charge of 15 minutes to reach 80% capacity. Not that investors are energized, so to speak.
Since Sept. 4, Kensington Capital stock has shed close to half its value and now trades at $13 per share, but this number won’t tell us as much as the Form 425 that Kensington Capital filed with the Securities and Exchange Commission on Oct. 15.
QuantumScape and the VW Quandary
When I peruse an SEC filing with as many charts and hyperbolic language as this one, I immediately get suspicious. Yes, the document serves as a sales pitch of sorts to brief key investors in Kensington Capital stock. But think about that.
If I brief such purse string holders on my progress — let’s suppose I’m selling shares of Lou here — I’m not going to go deep into the pitfalls and significant challenges. If at all. Repeat after me: Lou is going to revolutionize the investment writing world with his solid state technology.
Then again, this wasn’t exactly a QuantumScape press kit, either. And it didn’t have to be, considering that media outlets such as Fast Company are doing the drooling for them.
On Sept. 8, it ran a story that proclaimed, among other things, that “QuantumScape will produce the batteries” for “VW’s future electric vehicles” (my emphasis). Goodness! Sounds like Fast Company has cornered the market on the crystal ball sector! Or, as they like to say in my native South Philly, not so freakin’ fast, pally.
No one knows the future, not even Bill Gates or the Microsoft posse (See: Windows Mobile, Bing and the Terraserver). And for those with short memories, VW’s communications on the propulsion of its vehicles — and in this case including “future vehicles,” for crying out loud — can hardly be trusted. Not. One. Bit.
As of June, the Volkswagen emissions scandal now known as “Dieselgate” cost VW $33.3 billion in fines, penalties, financial settlements and buyback costs. Go back far enough in the archives, and you’ll see a photo fo a 2010 VW Golf TDI concept car that boasts “Clean Diesel” on its doors. Really.
Too bad that “future vehicle” never saw the light of day, given all the diesel smoke. And mirrors.
Kensington Capital Stock Tips Towards Overweight
All that established, hopeful signs remain for Kensington Capital stock and the battery operation it has committed to fund. Gates, when last I checked, isn’t a dummy. Another mass fraud like Dieselgate would crush VW, which has gone to great lengths to send the malefactors packing. Solid state battery tech has advanced beyond the blueprint stage.
Amazing things could happen, and here I tip the hat to InvestorPlace writer Mark R. Hake. He provides an astute financial analysis that highlights how, on page 28 of Kensington’s slide presentation, revenue is forecast to jump from $275 million in 2026 to more than $6.4 billion in 2028. If that holds, we’re talking about an increase of 23 times.
The only weak link in this chain, I think, is VW. Why on earth QuantumScape would shake hands with a company that still has soiled hands is beyond me; almost any other car manufacturer to my thinking would mark an improvement reputation-wise.
Both companies are making a big bet. But such is the nature of the nascent EV sector and you can find analogous situations everywhere you look, with numerous products and companies as works in progress.
Plus, this stock is cheap — perhaps too cheap — and I like cheap. Not that the numbers will stick, but if I buy 100 shares at the current price of $13, and multiply that by 23, I get roughly $30,000. And as it turns out, that’s almost enough to go out and buy a new electric car: solid state battery standard, solid state radio optional.
On the date of publication, Lou Carlozo held a long position in TSLA.
