Tesla's (TSLA -6.32%) much-anticipated "Battery Day" came and went last week, with initial investor reaction indicating the event did not live up to the hype. Or perhaps better to say, Tesla reconfirmed what we already knew: Battery technology is a huge challenge for electric vehicle (EV) manufacturers, and there are no quick and easy solutions to improve it.
But even if Battery Day didn't deliver as hoped, there is no questioning the potential of EVs. Tesla's stock has more than tripled year to date thanks to that promise, and a new generation of companies are following close behind, hoping to benefit from the coming disruption to the automotive industry.
Investors have a growing number of options when it comes to EVs. Here's why we're watching Kensington Capital Acquisition (KCAC), Tortoise Acquisition (SHLL), and Workhorse Group (WKHS -7.17%) closely right now.
A bet on a better battery
Lou Whiteman (Kensington Capital): One of the underlying themes behind Tesla holding a Battery Day is the idea that the current generation of lithium-ion batteries leave a lot to be desired in terms of safety and capacity. Alas, for a while now when it comes to cellphones, laptops, and EVs, there has been no better option.
QuantumScape is hoping its battery design can change all of that. The company is currently private, but in early September announced plans to go public via a merger with special-purpose acquisition company (SPAC) Kensington Capital.
The company is developing a solid-state, lithium-metal battery that in theory should be more stable, and therefore safer, than the lithium-ion batteries in use today. It also should have greater energy density, which would mean more miles from a single charge. That density should also mean fewer batteries and a lower vehicle weight, making electric powertrains potentially more viable for large trucks and even aircraft.
QuantumScape has a "who's who" list of backers, including Bill Gates and one-time Tesla chief technology officer J.B. Straubel. Straubel, who is on QuantumScape's board, called the design "the most elegant architecture I've seen for a lithium-based battery system," saying "the company has an opportunity to redefine the battery landscape."
But perhaps the company's most important backer is Volkswagen. In addition to investing, it has a partnership in place with QuantumScape to prepare for battery mass production and intends to eventually use the batteries in its EVs.
As Nikola investors have been reminded in recent weeks, there is risk in pre-revenue companies that hit public markets. But QuantumScape post-merger will have about $1 billion in cash on hand to continue development and a lot of high-profile validation. The merger also helps solidify its ties with the auto business, bringing Kensington CEO and one-time industry investment banker Justin Mirro and his rolodex on board.
Forget Tesla's Semi, here's a better way to clean up trucks
John Rosevear (Tortoise Acquisition): We all know that diesel-powered heavy trucks -- tractor-trailers and the like -- are big polluters. Not surprisingly, truck-fleet operators are feeling pressure to make their trucks greener. And they're ready to spend money to do it, as long as it doesn't break the bank.
We've seen Tesla's answer to the heavy-truck problem: The Semi, a radical-looking battery-electric heavy truck that Tesla plans to begin building in a to-be-constructed factory in Texas at some point in the next few years.
But what if there was an easier way? What if there was a company that was focused on designing hybrid and fully electric powertrains for heavy trucks that could be installed in the trucks made today by the six big global heavy-truck manufacturers?
What if this company took it a step further by signing up industry-stalwart partners to manufacture and install its innovative powertrains?
Hyliion, founded a few years ago by Carnegie Mellon-trained engineer Thomas Healy, is that company. Healy and his team have just completed development of their first product, a system that converts an existing diesel-powered heavy truck to a hybrid, and it has already been installed in some customer trucks for on-the-job testing.
But here's the real story. Hyliion will use the funding from its merger with SPAC Tortoise Acquisition, about $560 million, to complete development of its second system, a fully electric powertrain called Hypertruck ERX that can -- you guessed it -- drop right into any semi made by the six big manufacturers today.
Hyliion has partnered with auto-industry supplier Dana to manufacture both products, and there's an elegant twist: Dana ships the completed systems directly to companies that modify and retrofit heavy trucks -- companies that are already Dana's customers.
Simply put, rather than reinventing the semi from scratch, Hyliion has inserted itself into the existing heavy-truck ecosystem with a product that cleans up existing trucks. And soon it will offer another product that allows trucks already in use by fleet owners to operate with zero emissions.
One last note: Tortoise shareholders will vote to approve the merger with Hyliion next week. If it's approved (spoiler: it will be approved), the merger will take place shortly thereafter. The merged company will be called Hyliion and will trade under the ticker "HYLN."
Tesla's success is already priced in. This company's isn't -- yet
Rich Smith (Workhorse Group): So, according to Elon Musk at Battery Day, Tesla's Shanghai gigafactory is looking to produce 1 million Teslas a year. Bully for them. At a market capitalization of $395 billion -- nearly 10 times General Motors' market cap -- Tesla had better start making more cars, faster. In fact, I'd say the assumption that it will do exactly that is already baked into Tesla's stock price.
Meanwhile, tiny Workhorse Group has a market cap less than 1% of Tesla's. But I think it could get a lot bigger if Workhorse only builds 180 thousand trucks -- specifically, U.S. Mail trucks for the U.S. Postal Service.
Folks, I've been talking about Workhorse and this Postal Service contract opportunity for five years now, since way back when Workhorse was just a little known candidate competing against giants like Fiat Chrysler Automobiles, Nissan Motor, and Ford Motor. Workhorse never seemed to have much of a chance back then, but over the last half decade, it's survived to become one of just three teams short-listed to win the proposed $6 billion contract to build 180,000 mail delivery trucks for the Postal Service.
If Workhorse wins -- if it wins even part of this $6 billion contract -- the company's annual sales of less than $0.2 million are going to explode higher, taking the stock price with it. Now here's why I think Workhorse has a fighting chance at winning.
According to the Office of the Inspector General, one of the Postal Service's biggest headaches with its present fleet of aging trucks is maintenance. Annual maintenance spending on the 140,000-car fleet of gas-powered trucks comes to $700 million currently. Buying newer trucks will cut down on that expense. Still, both of the teams competing with Workhorse, Morgan Olson/Karsan and Ford/Oshkosh, are offering the Postal Service gas-powered vehicles that require significantly more annual maintenance work than all-electric trucks like the ones Workhorse is bidding.
My hunch is that in picking a winner, the Postal Service will want to take advantage of the opportunity to create a fleet free from expensive annual maintenance costs, and insulated from the fluctuating price of gasoline as well. Alone among the companies bidding on this contract, Workhorse offers the Postal Service that opportunity -- and this could be the positive factor that wins Workhorse the $6 billion contract.