Wait For a $5 Entry Point to Buy Solid Power


Solid Power (NASDAQ:SLDP) stock is one of the newer entrants in the next generation battery arena. SLDP stock kicked off trading recently. That followed its recent merger with a special purpose acquisition company (SPAC), Decarbonization Plus Acquisition Corp III.

A hand holds an electric vehicle battery charger up to a car.
Source: Shutterstock

Solid Power has some battery technology that, on paper, promises to transform the industry. Better quality batteries are vital to helping the electric vehicle (EV) revolution happen, as current batteries are the weak link the supply chain. A cheaper battery that holds a stronger charge could change the industry.

Unfortunately, Solid Power has almost no revenues yet, as it is in the early stages of development. As our Josh Enomoto put it, this company more resembles a clinical-stage biotech than a fully-fledged industrial company at this point. As such, SLDP stock is only for those with a high risk tolerance.

A Long Way To Significant Revenues

The big issue here is that Solid Power is a long ways away from meaningful commercial production. The company intends to get to D-sample testing of its High-Content Silicon Anode Cells in 2025. It hopes to reach a similar stage for its Li Metal Anode Cell product line in 2027. After D-samples, if things go well, then meaningful commercial production output can begin.

It’s all well and good that Solid Power can achieve solid benchmarks in its early stage trials. That’s the foundation for a good venture capital investment.

But, like I’ve said numerous times with fellow next-gen battery stock QuantumScape (NYSE:QS), I’m skeptical that a company like this should be publicly-traded already. Indeed, with QS stock, shares have now dropped more than 80% from their all-time highs. Traders get bored once the initial hype fades.

2025, let alone 2027, is an awful long time to see if the product works and if there is any commercial market for it. The stock market being so volatile and harsh toward speculative companies lately only makes things worse. Who has a five-year investment time horizon for a money-losing science project such as this one at the moment?

SPACs: Patience Is A Virtue

A year ago, just about any SPAC would be assured of scoring a nice pop once it finalized a deal. The markets were optimistic and investors rushed to plow money into these new opportunities.

A year later, however, the allure is gone. Many SPACs have collapsed amid unrealistic revenue projections, painful capital raises, and a market that has turned sharply against unprofitable “disruption” stocks. Nowadays, it seems, there is little reason to buy a SPAC around $10. Most of them eventually trade down to the $5 range, or even below there, as people demand a sizable discount to the opening offer price.

I can see this as well through this particular SPAC sponsor. You may have noticed that the SPAC that merged with Solid Power is Decarbonization Plus Acquisition Corp III. Which leads to the question, “What happened to the first and second SPACs of the Decarbonization Plus series?”

Glad you asked. The first one is now Hyzon Motors (NASDAQ:HYZN). Hyzon is in the fuel cell industry with a focus on heavy trucking applications. Shares traded above the $10 mark at one point, but have crashed amid a slow revenue ramp-up and short seller allegations around fake orders and misleading management statements. HYZN stock bottomed in the $3s and is currently trading around the $5.82.

The second Decarbonization SPAC is Tritium DCFC Limited (NASDAQ:DCFC). This is a small money-losing negative profit margin EV charging business. Like many SPACs, DCFC stock has been volatile; it hit $19 at one point. However, the stock also dropped to as low as $6.42 per share, and is below the $10 mark. In general, there just isn’t a rush to buy these post-SPAC merger companies, at least not until their prices drop significantly from the opening $10 level.

The Bottom Line

There’s a good chance Solid Power will shape up like a Hyzon or QuantumScape did. That is to say, after the initial buzz fades, that the stock plummets. When there are not many revenues and certainly not any profits to point to, investors tend to lose patience.

A story stock only holds so much appeal in a market where tech names in general are on the decline. And the SPAC climate has changed so much over the past 12 months. When QuantumScape was running hot, it was the big name in batteries. Now, there are a host of publicly-traded battery stocks to pick from, and thus none of them are garnering much persistent trader interest.

All that to say that there may eventually be a day where SLDP stock shines. But that day isn’t likely to be in the near-future. The story phase of the SPAC boom is over. Now companies have to demonstrate tangible results. And Solid Power is still well away from reaching that point in its evolution.

On the date of publication, Ian Bezek 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.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a sizable New York City-based hedge fund. You can reach him on Twitter at @irbezek.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

Article printed from InvestorPlace Media, https://investorplace.com/2022/02/sldp-stock-solid-power-wait-for-a-5-entry-point-to-buy/.

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