The rapid growth in electric vehicles (EVs) has resulted in a heightened interest in technologies that can enhance EVs' performance and further accelerate their adoption. Batteries are core to EVs and differentiate them from internal combustion engine vehicles. Improving the batteries is thus a key focus of EV manufacturers, who are investing millions of dollars in researching the next-generation battery technology.
Solid Power (SLDP 5.67%), which went public in December, is a promising company in this segment. Let's take a closer look at what Solid Power is doing, how it differs from others, and when it expects to start commercial production -- and, importantly, what all this means for the company's stock.
Batteries usually have three main parts -- an anode, a cathode, and an electrolyte. The lithium-ion batteries that are used in EVs currently typically have a silicon anode.
These batteries use liquid electrolytes, which have certain limitations. As an example, lithium-ion batteries have limited energy density, which is the amount of energy stored per unit volume. This limits a vehicle's range for a given battery size. Moreover, lithium-ion batteries have a limited battery life and contain volatile and costly materials.
To address these concerns, battery technology companies such as Solid Power are working on developing a solid electrolyte, which will help increase a battery's energy density while also making it safer and less costly.
Solid Power plans to just sell the electrolyte to existing battery manufacturers. It doesn't intend to make the batteries itself. To some customers, it could also just sell the technology and cell designs, and not even the electrolyte. Solid Power's electrolyte can be used with a silicon anode or a lithium metal anode.
Speaking of cathode, Solid Power's electrolyte can be used with cathodes currently in use, such as lithium nickel manganese cobalt oxide, or NMC. Over time, Solid Power aims to remove nickel and cobalt from the cathode, which will help reduce costs significantly.
Solid Power expects to start generating revenue this year
As Solid Power's cell designs are compatible with the existing technology and production processes, they can be commercialized faster than those from its competitors. The company aims to increase its electrolyte production capacity to 30 metric tons per year in 2022. It aims to reach a capacity of 6,000 metric tons by 2026, which will be enough to support production of around 100,000 electric vehicles annually.
Solid Power's plans differ from its top competitor QuantumScape (QS 7.73%), which is aiming to start commercial production in 2024. QuantumScape plans to design and produce the entire battery itself. Another key difference is that its electrolyte is oxide-based, compared to Solid Power's sulfide-based electrolyte. Solid Power believes that sulfide-based solid electrolytes offer the best balance of performance and mass production.
Notably, Solid Power expects to start commercial production of silicon EV cells, with a battery manufacturer partner, in 2024. Similarly, it expects its lithium metal cell to enter the commercialization stage in 2026. So, Solid Power's approach toward commercialization is incremental. In the long run, Solid Power intends to just sell its solid electrolyte, which the company expects will generate higher margins than producing the entire battery.
Backing of Ford and BMW
Solid Power has investments from Ford (F 3.12%) and BMW (BAMXF) (BMWYY 0.52%), with whom the company has also entered joint development agreements for automotive-scale electric vehicle cells. These would be Solid Power's ready customers once it starts commercial production. Solid Power has also partnered with South Korea's SK Innovation, which could start producing Solid Power-designed cells in 2024.
Partnerships with leading auto and battery makers lend credibility to Solid Power's plans. The company's focus just on the technology and design makes its model capital-light. Partnership with an established battery maker should help in the smooth commercialization of Solid Power's designs.
Is Solid Power stock attractive?
Solid Power's asset-light model, staggered approach toward commercialization, and backing of leading auto and battery makers make it an attractive investment. At the same time, Solid Power could be the first independent battery technology company whose cells enter automotive qualification in 2022.
However, it is important to note that Solid Power doesn't expect to generate positive earnings before interest, tax, depreciation, and amortization (EBITDA) in 2026. It is a long time, and many things can go wrong in the meantime. The company's technology may not work as expected, or a competing technology may work better. Though Solid Power stock looks attractive, it is suitable only for investors with a high appetite for risk.