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Thinking of Investing in Solid Power? Here's What You Should Keep in Mind

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This battery technology play isn't a good fit for everyone.

Solid Power is a promising battery technology company set to go public via special purpose acquisition company merger with Decarbonization Plus Acquisition III (DCRC). And while the company could be a big winner for investors if it can execute on its vision, that's far from a certainty at this point. In this Fool Live video clip, recorded on Oct. 18, contributors John Rosevear and Danny Vena discuss what investors should keep in mind before adding Solid Power to their portfolio.

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Danny Vena: John, let me ask. It almost sounds, pardon my ignorance, but it almost sounds that this is pretty close to a no-brainer. Am I reading this wrong? It sounds like they've got a huge addressable market, they have customers lined up, the technology is about ready for prime time and the valuation is far below what the company's market cap, am I reading that all right?

John Rosevear: I think so. The one catch of course is that lots of other groups are working on this technology and some of those groups have names like Toyota, which is driving its own effort. They are thought to be going down a similar path as Solid Power, at some point, solid state electric vehicle batteries will be a commodity that point is probably 10 years, 15 years away.

But it's who can get significant share of that $220 billion early and Solid Power with, given that it's close to Ford and BMW, both of which are in the process, like most of the legacy auto Americans who's scaling up their electric vehicle plans gives them an edge there. When you look at who's allied with who around this industry, Ford and BMW are probably going to get to huge volumes of EVS a little later than some of the other entrants. This is not necessarily a disadvantage for various reasons for them, but it means that Solid Power's total addressable market might be a smaller portion of that $220 billion than perhaps some rivals in the near term.

On the other hand, yeah, it does look pretty good to me, I can tell you I have not met or talked to the senior leaders at Solid Power, but I've talked to people at Ford who work with them and they speak highly of the company and that's a significant endorsement for me. I do think it's a really intriguing investment any battery tech, because the technology moves so slowly and because there are all sorts of potential problems in getting to scale, these are investments that should be gone into with some thinking about risk.

One of Solid Power's advantages as they don't need to spend billions and billions of dollars building factories. Because their batteries can be built on production lines that are similar to what's used for lithium-ion batteries so they can get out there relatively quickly, that's another advantage. QuantumScape is going to have to build factories and those factories could be expensive to get to scale to supply a customer like Volkswagen.

Emerging technology, it may take some time to emerge. Here is a player that has some good partnerships, very promising technology. Their claims have all checked out so far, they could be in production 15 months from now, 16 months from now, and supplying batteries to Ford and BMW, neither of which are tiny companies. The valuation appears quite modest compared to the one big comp that we see in the market that's public now. So yeah, that's my take.

Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Volkswagen AG. The Motley Fool has a disclosure policy.

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