1 Battery Technology SPAC Deal to Watch

Solid Power, which develops automotive battery technologies, is set to go public via a special purpose acquisition merger with Decarbonization Plus Acquisition III (DCRC). In this Fool Live video clip, recorded on Oct. 18, Fool.com contributor John Rosevear breaks down what Solid Power does and why the stock is on his radar -- and gives investors a lesson in solid state battery technology in the process.

John Rosevear: The first company, the name of the company is Solid Power. It's currently in a SPAC deal. The SPAC merger will be completed in the fourth quarter. The SPAC is named Decarbonization Plus Acquisition III, a truly spacky SPAC name, if you ask me. The ticker is DCRC, Nasdaq. If you're looking for it later, that's it. What Solid Power is doing if you looked at QuantumScape (QS -1.65%) at all, that was a popular stock to talk about and buy and invest in last year. If you looked at QuantumScape at all, you know something about solid state batteries, but if you don't want, here's why they're important.

This is the Holy Grail technology or at least seen as a significant step forward for electric vehicles that will make them safer, they'll be able to recharge faster and so forth. We can get into the tech here a little bit. I will try not to bore you with this. Briefly, today's lithium-ion battery cells have three pieces. There's a cathode that contains lithium and other metals, an anode that contains carbon, sometimes silicon as well, and a separator, that's a porous polymer usually in current technology, there's also a liquid called and electrolyte, which is usually lithium dissolved in a solvent, lithium salt. The idea here is when you charge a battery, lithium ions are driven from the cathode to the anode.

QuantumScape's CEO has a great way of explaining this. It's like metal balls being driven up a hill. You push them up the hill and then they're held at the top of the hill in the anode until the battery is discharged, which frees the ions to roll back down the hill and releases energy, in this case, in the form of electricity. The scienc is more complex, battery science is fiendishly complex and it moves very slowly if you're familiar with any other tech where you think in terms of months or quarters for new technologies; in batteries, we think in decades. It can make these really frustrating investments.

There are four things to know about lithium-ion battery cells right now as they apply to electric cars. Up in that anode, up at the top of the hill, it takes six carbon atoms to hold one lithium atom. That's why current batteries are heavy. It takes time for the lithium atoms to diffuse into the carbon, meaning to settle down at the top of the hill. This is why recharging takes a while. There's a chemical reaction that consumes a little bit of the lithium on every charge-discharge cycle, one or two of the little steel balls get lost somewhere. This is why batteries lose capacity over time. The last, but not least, the liquid electrolyte and the polymer separator are both combustible. This is why electric vehicle fires happen and why there's such a pain to put out.

Solid-state batteries, the idea is they address all four of those problems by replacing the carbon anode with one made of lithium or lithium in combination with something else. In theory, that makes the batteries smaller, they'll recharge more quickly, they'll last longer, and they would be less prone to fires. Also it's an additional bonus, they might be cheaper to manufacture. Now, there's a problem with that from the view of battery technology, which is that the lithium anodes don't work with electrolytes. What you need to do is the separator, the thing that goes between the cathode and the anode, you make that of a solid material that can also function as the electrolyte. This is why we call them solid-state batteries because they get the liquid out.

There are a couple of ways to go about that. A couple of schools of thought and the people trying to make solid-state batteries, which is something that has been attempted for decades. I have a few different routes. QuantumScape, which is a company that's been talked about a lot, they're developing a ceramic separator from a novel material. In theory, that could offer really great performance, the problem is that it will be difficult to manufacture at scale. This is why when you hear about QuantumScape and they're not expected to have their batteries in production until 2025, maybe later.

Meanwhile, Solid Power is using a sulfide separator. This is somewhat less good for various reasons than the ceramic, but it's relatively easy to manufacture and it can make very good batteries. A ceramic separator might make a great battery, but Solid Power and the companies pursuing this path can make a very good battery. The good news is with Solid Power, they think they're going to begin mass production early in 2023. They're doing pilot production next year, which they will supply to two automakers, both of which are investors, namely Ford and BMW. Then we get into the company itself.

This merger deal values the combined company at $1.2 billion. QuantumScape's market cap is over $10 billion. They're both aiming at the same market, they both have automaker partners, QuantumScape is partnered with Volkswagen. Into the details of the SPAC deal, they'll have about $600 million in cash after the transaction closes, which is enough for them to go to market. BMW and Ford are both investors and they're going to be early customers. Last but not least, they say their total addressable market is about $220 billion. There's lots of potential upside here if they land with a better mouse trap. That's what this is about.