What happened
Shares of QuantumScape (QS 5.69%) were moving higher on Tuesday. Shares of the company, which is developing an innovative solid-state battery for electric vehicles, got a boost after a major automotive trade association urged lawmakers and the incoming Biden administration to back a sweeping series of measures to support electric-vehicle adoption.
As of 1 p.m. EST, QuantumScape's shares were up about 10.8% from Monday's closing price.
So what
The Alliance for Automotive Innovation, a trade group representing nearly all of the major automakers, released a report on Tuesday that outlines a series of steps to boost the electric-vehicle market in the United States and to revamp regulatory oversight of autonomous vehicles.
If adopted, the measures would give electric vehicles a significant boost in the U.S. and pave the way for adoption of autonomous vehicles as well. Right now, EV adoption rates in the U.S. lag those in both Europe and China. While it might seem counterintuitive, automakers doing business in those markets stand to benefit in the long run from measures that would help them sell more EVs in the United States as well.
For QuantumScape, the connection is obvious. The company last week presented an overview of its technology, the gist of which is a solid-state electric vehicle battery that promises to be cheaper, safer, and quicker to charge than the best current options. If EVs become more popular in the U.S., more batteries will be sold to automakers.
Volkswagen, a key QuantumScape partner and investor, hopes the company's solid-state batteries will power its next generation of EVs. Image source: Volkswagen AG.
Now what
Solid-state battery technology is something of a "holy grail" in the electric-vehicle space, not least because -- so far -- nobody has come up with a way to manufacture the batteries at scale at a cost that makes sense for autos. QuantumScape thinks it has cracked the code, but with an important qualifier: Even with help from partner and investor Volkswagen (VWAGY 1.26%), it will likely take five to seven years to get its batteries into mass production.
While QuantumScape's technology has great promise, that timeline is a reason for caution. Competitors -- including another automotive giant, Toyota -- are making big investments in their own solid-state battery programs. This is a race in which the first movers could end up taking an outsized share of the market.
If the Biden administration adopts the measures recommend by the Alliance for Automotive Innovation, which seems very possible, then the market for EVs will be even bigger by mid-decade.
For auto investors betting that QuantumScape can be an early mover in solid-state batteries, that could turn out to be a very good thing.
