- This is a Z4 Research Quick Note
KCAC SPAC is taking QuantumScape Public (future ticker QS)
Kensington Capital Acquisition Corp (KCAC), a SPAC with deep auto industry experience, is bringing solid-state lithium-metal battery developer QuantumScape public. QuantumScape has been working on improving batteries for EVs (and potentially other applications) since 2010 and has been backed and partnered with Volkswagen (OTCPK:VWAGY) since 2012. The company claims its battery solution will offer significant improvements in range, charge time, battery cycle life, cost, and safety. The company has a large patent library and has received validation from VW and has been noted by Bill Gates who is an investor here personally. Going public now positions them for commercial operations in 2024 and they forecast rapid expansion thereafter.
Today, just 2% of all vehicles sold are electric (BEV and PHEV). If electrification of the automotive powertrain were to reach its full potential, we see a battery industry that can generate hundreds of billions of dollars of revenue per year for the next several decades. “
Further, our business is at the core of sustainability and addresses key ESG attributes that are so critical to so many, as our technology enables a reduction in global CO2 emissions, is designed around abundant resources, and enables clean energy sources.”
we see the availability of a better battery as mission critical.”
Lithium-Ion batteries have reached their physical limit”
Their Product – Solid-state lithium-metal batteries:
- Proprietary solid-state separator: ($300 mm already spent)
- Eliminates graphite or silicon anode host material. Exchanged for pure lithium metal.
- Development has focused on ability to scale. Separator production scalable since 2017.
- > 200 patents and pending patents and 100 trade secrets.
Vs. Lithium Ion:
- Higher energy density: leads to better EV range – 50 to 100% greater range vs. Lithium-Ion, and on the upper end of the scale within the current Lithium-metal battery range
- Charging: < 15-minute charge time (80% charge)
- Longer battery cycle life: As they put it “by not having a liquid electrolyte in contact with the graphite, lithium is not gradually “chewed up” over time through side reactions”
- Safer – electrolyte used is noncombustible (fireless likely)
- Lower cost – by the elimination of anode materials and the associated reduction in manufacturing cost (anodeless manufacturing), they see a 15-20% cost reduction
- Yields more power for less cost
Collaboration with Volkswagen
- VW – partners since 2012 – multiple funding rounds (F latest) with more planned in JV format as they progress to full scale production
- VW – technology validation. The batteries work well according to VW making QS at what VW says are auto rates of power (this is a lab-based test to simulate the levels of power a car would need). According to QS, theirs is the only solid-state battery with vehicle OEM validation
- VW has a representative on the QS board
- VW plans ~70 EV vehicle models by 2029 with plans to produce 22 mm BEVs
Their (LONG) Road Map:
- Development and testing to continue to 2022.
- Followed by OEM sample testing.
- Followed by the start-up of the pilot plant which is the initial phase of the QS1 site by 2024. The initial phase is forecast to be a 1 GWh plant (10,000 EV battery capacity per year)
- First revenues generated here, in 2024.
- No additional funding is expected to be required through 2024.
- Followed by QS batteries on the road in VWs in 2025.
- Followed by expansion of QS1 by 20 GWh in 2026.
- Forecast multi-billion-dollar revenue in 2027.
- EBITDA margin of mid 20%s.
- See having 90 GWh capacity in 2028 (900,000 BEV batteries, $6 B in revenue, and first year of free cash flow).
- They also see opportunities for licensing and JVs and non-BEV battery storage markets.
- Enterprise Value of $3.3 B (at $10) or about 369 mm shares outstanding.
- QS will have cash of $1.15 B and no debt. Existing shareholders will be subject to 180 lockup (potentially 150 days given where the stock is trading now).
- Funds remaining development and fully funds large scale battery production at a pilot plant in a JV with VW by 2024.
Other Items of Note:
Nutshell: We have wanted to be in the battery space for some time now and had read a bit on this one before the deal was announced yesterday. There are no analyst estimates here and it will be a speculative name that lives on news but not revenues for the next few years. That’s fine. We like waiting patiently alongside industry leaders in a name like this. We own a little personally and have a starter position in the ZLT as of yesterday, taken at $15.95. This will be almost a buy and watch name for us for a while given the timeline.
Disclosure: I am/we are long KCAC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.