Solid Power Is an Extremely Risky Wager on Unique EV Batteries

Editor’s Note: This article has been updated to remedy an inaccuracy. 

Not long ago – Dec. 9, 2021, to be precise – Solid Power (NASDAQ:SLDP) debuted on the Nasdaq exchange after the company completed its SPAC (special purpose acquisition company) merger with Decarbonization Plus Acquisition Corp. III. As a result, Wall Street can say good-bye to DCRC stock and hello to SLDP stock.

Battery and wire installed on electric system of eco car engine.
Source: Shutterstock

Thus, we have another electric vehicle (EV) SPAC stock. Informed investors should wonder: what makes this one different from all the rest?

First of all, Solid Power doesn’t sell electric cars or trucks. Rather, the company provides batteries for these EVs – and these aren’t just the same old lithium-ion batteries you’ve probably seen before.

On the other hand, Solid Power’s financials aren’t ideal. Therefore, when considering this company as a prospective investor, you’ll have to weigh your own risk tolerance against your enthusiasm for EV batteries with unique properties.

A Closer Look at SLDP Stock

InvestorPlace contributor Eddie Pan did an outstanding job of covering the Dec. 9, 2021, debut of SLDP stock. So, don’t hesitate to read that article (and then come back to this one, of course).

The stock traded at around $14 on that first day, but it didn’t stay there for long. Unfortunately for early investors, the share price tumbled during the next several weeks.

As of Jan. 6, 2022, SLDP stock had already fallen to $8. Some folks consider it a bad sign when a SPAC stock declines below the typical pre-merger-announcement price of $10.

Yet, prospective investors can choose to view the glass as half-empty or as half-full. Just maybe, there’s a rare bargain here – but that depends on whether you like Solid Power’s business model, so let’s delve into that right now.

Building a Better Battery

As the company’s name suggests, Solid Power develops and sells solid-state EV batteries. Since they don’t contain liquid electrolytes, the risk of fire or explosion should decrease, at least in theory.

Pan observed that solid-state batteries are typically costlier than lithium-ion batteries. Hopefully, solid-state EV battery prices will go down over time with the emergence of technological advancements.

If you’re interested in the science behind the company’s innovative battery tech, Solid Power offers an explanation.

“Solid Power replaces the flammable liquid electrolyte contained within a conventional lithium-ion battery with a proprietary sulfide solid electrolyte,” the company clarifies.

The result, according to the company, is a battery that’s designed to be safer, more stable at high temperatures and able to provide higher energy at a reduced cost.

This could prove to be a very lucrative opportunity. Indeed, Solid Power envisions a $305 billion total addressable market by the year 2035 for its batteries.

Solid Ground

It remains to be seen whether Solid Power will generate robust returns for its shareholders in 2022 and beyond. Going forward, the company must prove that its unique battery technology will yield long-term profits.

Solid Power did receive, upon closing of the merger transaction with Decarbonization Plus Acquisition Corporation III and following a shareholder meeting, gross proceeds of around $542.9 million. This raises a valid question, though. Will this, along with other funding sources, be sufficient to capitalize Solid Power’s operations?

As always, the market will decide which businesses get to survive and thrive. Even the most risk-tolerant investors should watch for Solid Power’s upcoming financial reports and read them carefully. Hopefully, Solid Power will provide positive bottom-line results (profits, not just revenue) as well as encouraging forward guidance.

$542.9 million can last a while, or it can evaporate as capital expenditures whittle away the capital stockpile. Solid Power’s stakeholders should hope, after conducting their due diligence on the company, that the automotive market — including the major automakers as well as the customer — are prepared to accept EV batteries that they’re not (yet) accustomed to.

The Bottom Line

In order to appreciate Solid Power’s value proposition, you’ll need to envision a future in which solid-state EV batteries prevail.

That future isn’t guaranteed, so SLDP stock is risky. It could go to zero, or it could make a 10x move to the upside – the sky’s the limit, really.

Hence, a small position in the stock is perfectly fine. Just be aware that, while the company’s battery technology is certainly interesting, Solid Power still needs to prove its viability from a financial standpoint.

On the date of publication, David Moadel 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 Publishing Guidelines.

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