In 2020, there have been more shell companies than shells on the beach. Among them is Kensington Capital (NYSE:KCAC), a blank-check company that merged with QuantumScape. You can trade Kensington, and therefore QuantumScape, through KCAC stock. But the question is, what’s special about this company?
That’s a perfectly valid question as there have been plenty of special purpose acquisition companies (SPAC’s) in the electric-vehicle (EV) space. Yet, QuantumSpace is no ordinary EV company.
In fact, it’s not in the business of selling cars and trying to compete with Tesla (NASDAQ:TSLA) or Nio (NYSE:NIO). That’s a good thing as there’s an awful lot of competition in this area.
Rather, QuantumScape is what you might call a “picks and shovels” type of company. By this, I mean that QuantumScape provides something that all electric-car companies will need rather than the cars themselves. There’s risk involved, sure, but the potential for disruption – and for upside in KCAC stock – is considerable.
A Closer Look at KCAC Stock
The timeline for KCAC has been fairly quick, but QuantumScape’s been around for a while. CEO Jagdeep Singh founded QuantumScape in 2010, and he probably didn’t know back then that it would be a decade before his company would be indirectly traded on the New York Stock Exchange.
On June 25 of this year, Kensington Capital announced that it would price its initial public offering (IPO) at $10 per unit, with 20 million of those units to be sold. Hence, the company collected gross proceeds of $200 million.
The KCAC share price didn’t immediately shoot to the moon. That’s because the investing community didn’t yet have all of the information it needed about Kensington Capital’s business plans.
But then, on Sept. 3, traders went ballistic when Kensington Capital announced that it was merging with QuantumScape. That’s when KCAC stock doubled in price, rocketing from $10 to more than $20.
As of Nov. 20, KCAC stock was still slightly above $20. Only time will tell whether this price point is sustainable, but if you believe in QuantumScape’s bold vision, then you might consider taking a chance on this fast-moving stock.
Fueling the Revolution
There’s not much point in focusing on Kensington Capital since it’s just a shell company. The real story here is about QuantumScape, which as I suggested earlier, could be a highly lucrative “picks and shovels” play for KCAC investors.
Based in San Jose, California, QuantumScape develops next-generation, solid-state lithium-metal batteries. Knowing this, we can now better understand why KCAC stock doubled in such a short period of time.
InvestorPlace contributor Chris Markoch perfectly summed up the importance of QuantumScape’s product offerings when he wrote, “… 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.”
Sure, EV automakers like Tesla and Nio can battle amongst themselves and tout their vehicle-delivery stats all day long. But at the end of the day, they’ll all need efficient lithium batteries.
Clearly, there must be something different about QuantumScape’s batteries. After all, the company has backing from none other than Bill Gates, who said that QuantumScape has resolved lithium’s problems.
On top of that, German automotive giant Volkswagen (OTCMKTS:VWAGY) has invested $300 million in QuantumScape. This includes a $200 million investment in 2020.
What really sets QuantumScape’s state-of-the-art battery apart is that, according to the company, this battery could potentially increase the distance electric vehicles can travel on a single charge by 50%.
Powered by QuantumScape’s batteries, Volkswagen’s electric vehicle offerings could set the standard for the industry. If that pans out, then other automakers could come calling as QuantumScape’s batteries would be a red-hot commodity.
The Bottom Line
As an investment, KCAC stock is really still in the early innings. It will take some time for QuantumScape’s ambitious vision to come to fruition.
Nonetheless, KCAC offers a unique angle among electric vehicle stocks. It’s a “picks and shovels” type of play with powerful upside potential, even if the share price has already doubled.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.