Before you get any misconceptions, I like Solid Power (NASDAQ:SLDP). One of the growing numbers of companies developing solid-state batteries for electric vehicles, Solid Power, via development of its silicon EV cell, could have the magic touch: high energy density, longer lifespan, reduced cost profile and best of all, safe. So, why isn’t SLDP stock lighting up the market?
Well, in a way, it is but with the wrong color — as in red. On a year-to-date basis up to the close of the Jan. 25 session, SLDP stock is down almost 17%. Over the trailing month, shares have dropped 28%.
To be fair, the technology sector in general has been taking the heat due to investors rotating out of risky assets because of the Federal Reserve’s signaled hawkish monetary policy. The Nasdaq index tracker exchange-traded fund, Invesco QQQ Trust (NASDAQ:QQQ) is also down, though not as much, as 13.3% and 14.6%, for the respective periods.
As well, SLDP stock is mitigating the losses much better than rival QuantumScape (NYSE:QS), which have seen its shares plummet 31% YTD and over 36.1% in the trailing month. Still, that other companies are doing worse isn’t exactly the strongest selling point. At the end of the day, a company must provide a case for itself irrespective of outside circumstances.
The hope is that with enough time — especially once the Fed-related volatility dies down — investors will take time to recognize Solid Power’s upside potential. Generally speaking, EVs present a chicken-or-egg dilemma. To get EVs accepted by the mainstream, the infrastructure must be available. But to justify said infrastructure, EVs must be accepted by the mainstream.
Solid Power potentially provides a solution, with higher-capacity electrodes that facilitate greater driving range. Further, the company’s silicon EV cell is resilient across a range of temperatures. Most importantly from an economic perspective, these batteries should use less material, translating to lower EV costs.
What’s not to love?
View SLDP Stock Like Early Stage Biotech
One of the challenges that an investor will have for SLDP stock is the underlying science. There’s a big difference between paper or laboratory science and real-world, commercially applicable science. Thus, Solid Power is aligned more with an early clinical stage biotech company than an EV manufacturer.
That’s no knock on SLDP stock as this challenge is not much different from what QuantumScape or any other SSB competitor faces. The concept makes complete sense: develop a battery that’s more energy dense and promotes the most efficient uses of physical materials. In other words, these innovators are attempting to mimic as scientifically possible the potent attributes of fossil fuels while being clean emissions.
The risk with any speculative biotech is that the segment features a high failure rate. But get it right and you can make off handsomely. That’s the allure of SLDP stock and its ilk.
However, because of the coronavirus pandemic, even if Solid Power reaches a breakthrough, it might not matter as much as it would have if the crisis never happened.
You see, Americans have been keeping their cars for a record average 12.1 years. And this isn’t just a pandemic-related circumstance — Americans were holding their vehicles for longer well before Covid-19. Combine this trend with blistering prices for used cars and you have a terrible situation for the EV sector.
While waiting for car prices to resemble normalcy may be smart, that outlook might take a while. In the meantime, some folks don’t have the luxury, especially if their long-held rides finally give out. Thus, in order to make the premium car prices make financial sense, consumers must hold their rides for even longer.
What would have been demand now without the pandemic may be kicked out a few years.
Right Product, Wrong Time
It’s fair to point out that this Covid-related delay could be beneficial to SLDP stock. Basically, the circumstance gives the underlying company more time to perfect its product. Then, when Solid Power is ready, so too will the consumer base.
However, a critical issue may stem from cost savings. Per Solid Power’s website, the expected cost savings of its EV cell is between 15% to 35%. That’s sizable but by the time the average consumer is ready to transition to EVs following their forced purchase of overpriced used cars, standard lithium-ion batteries may have enjoyed their own native efficiencies, cutting down on the Solid Power advantage.
Of course, I’m not going to guarantee that this outlook will take place. However, it should remind us that even with a successful outing for Solid Power — and I hope that will be the case — the company must still contend with broader issues that it can’t control.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.