What happened

Shares of battery start-up QuantumScape (QS -6.93%) opened sharply lower on Thursday, after Nikkei Asia reported that auto giant Toyota (TM -3.23%) will unveil a competing solid-state battery next year. 

As of 10 a.m. EST, QuantumScape's shares were down about 7.6% from Wednesday's closing price.

So what

Nikkei reported that Toyota is planning to unveil a prototype electric vehicle powered by its own solid-state batteries next year, that it plans to be the first company to sell an EV powered by solid-state batteries, with that vehicle coming to market in the "early 2020s," and that the Japanese government is backing the effort.  

This is important. Solid-state battery technology has been something of a holy grail for the electric vehicle industry. These batteries have the potential to make electric vehicles safer and cheaper while drastically reducing recharging time -- if they can be manufactured at a scale and cost and with durability that makes sense for automotive applications. 

A Volkswagen ID.3 electric vehicle on the production line at VW's factory in Zwickau, Germany.

Volkswagen hopes that its next generation of EVs will have solid-state batteries from QuantumScape. Will Toyota beat VW and QuantumScape to market? Image source: Volkswagen AG.

That's a big "if." Plenty of researchers, including QuantumScape, have created prototype solid-state batteries. But all have acknowledged that manufacturing will be a big challenge. 

QuantumScape said on Tuesday that its prototype solid-state battery has generated impressive results in testing and that it can be manufactured with current technologies. That had investors hoping that the company might be first to bring the technology to market, working with its partner and investor Volkswagen (VWAGY -1.11%).

But the news about Toyota's effort has thrown a curve ball at that thesis, and that's why QuantumScape's stock opened lower on Thursday. 

Now what

Does this mean all is lost? Not at all. QuantumScape is a smart company with a prototype of what could be a genuinely game-changing product -- and a partner (VW) that is one of the auto industry's heaviest hitters.

But auto investors should take note: Toyota is an equally heavy hitter, and a manufacturer with few peers in any industry. The race is on.