First Look: Solid Power, a Ford-Backed QuantumScape Rival, Will Go Public via SPAC
This is more than just another electric vehicle SPAC deal.
John Rosevear
Solid Power, a promising solid-state battery start-up backed by Ford Motor (NYSE:F) and BMW (OTC:BMWYY) (OTC:BAMXF), said that it has agreed to go public via a merger with special purpose acquisition company (SPAC) Decarbonization Plus Acquisition III (NASDAQ:DCRC).
The deal values the combined company at about $1.2 billion.
Many investors have been overwhelmed by the number of SPAC deals in the electric-vehicle space over the last year, and some have soured on the space now that a couple of last year's darlings have turned out to be, well, less than they seemed. But if you still believe that electric vehicles are the future (I do), Solid Power is worth a close look. It's a company with real potential, with some big customers ready and waiting for its products, and with technology that's much closer to mass production than that of its most prominent rivals.
What is Solid Power
Colorado-based Solid Power, founded in 2012, is one of several companies working to develop so-called solid-state batteries, which omit the liquid electrolyte used in the lithium-ion batteries that power most electric vehicles today. (Among the others: QuantumScape (NYSE:QS), which drew lots of attention from investors after it went public via its own SPAC deal late last year.)
Solid-state batteries have the potential to offer greater energy density than lithium-ion batteries with less weight, but a design that can be mass-produced at a reasonable cost has eluded researchers for years.
That may soon change.
What makes this a big deal
First and foremost, Solid Power appears to be closer to mass production than its rivals. Most solid-state battery efforts are at least a few years away from production. QuantumScape, for example, is hoping to begin pilot production of its batteries in about three years. But Solid Power is already producing its second-generation 20 ampere-hour (Ah) battery cells on a pilot production line, and it expects to begin pilot production of its full-scale 100 Ah batteries next year.
An engineer in a white lab coat holding two rectangular battery cells.
A Solid Power manufacturing engineer holds two 20 ampere hour (Ah) all solid-state battery cells, produced on its pilot assembly line in Colorado. The company will begin pilot production of its next-generation 100 Ah cells for BMW and Ford next year. Image source: Solid Power.
Second -- again, unlike most competitors -- Solid Power's solid-state battery cells can be manufactured with equipment and processes adapted from lithium-ion battery manufacturing, meaning that existing battery plants can be converted to build Solid Power's cells at relatively low cost.
Finally, as I mentioned above, both Ford and BMW are investors in Solid Power. Both participated in the company's most recent funding round earlier this year, both expect to receive batches of those 100 Ah cells for testing in their own electric vehicles next year, and assuming those tests go well, both will be early customers for the company's mass-produced cells.
What are the terms of the Solid Power SPAC deal
Solid Power's deal to merge with Decarbonization Plus III follows the pattern of other SPAC deals we've seen in the electric vehicle space over the past year, in that it includes a PIPE (for "private investment in public equity") that allows big investors to buy stock in the merged company at an agreed-upon price, adding extra cash to the deal.
Here are the key points of the deal:
Decarbonization Plus III is contributing the cash it holds in trust, about $350 million.
The PIPE will bring another $165 million from investors including Riverstone Energy, Koch Strategic Platforms, and funds advised by Neuberger Berman and VanEck Global.
Together with the $135 million that Solid Power raised in its Series B round last month, the post-merger company will have about $650 million in cash.
The merged company will retain the Solid Power name and will trade on the Nasdaq Stock Market under the ticker symbol "SLDP."
The deal is expected to close in the fourth quarter of 2021.
What are the risks if I buy DCRC now
As with any SPAC deal involving a company that hasn't yet brought its product to market, there are risks investors should keep in mind:
It's possible that the deal won't close, or that it'll close later than scheduled.
It's possible that the company's technology won't pan out, or that it goes into production later than expected. Investors who are used to tech start-up time frames should note that the pace of progress in the battery space is glacial by comparison. Solid Power has been working on its batteries since 2012, QuantumScape since 2010.
It's possible that one or more competitors will beat Solid Power to market, taking significant share.
It's possible that we'll learn things about Solid Power that make it a less attractive investment. (I have no reason to think this will happen, but all SPAC investors should be mindful of the examples of Nikola and Lordstown Motors, both of which made important claims that were later found to have been exaggerated.)
A 2022 Ford F-150 Lightning, an electric pickup truck, shown towing an Airstream camping trailer.
Ford's electric F-150 Lightning will use cells developed with Korean battery maker SK Innovations. But the next generation of the truck, expected later this decade, might well use Solid Power's cells. Image source: Ford Motor Company.
Is DCRC a buy
I'm not sure yet, but right now I'm leaning toward "yes." Solid Power's technology is very promising, and executives at Ford think highly of the company's technology and leadership team. As with any battery start-up, the question is when (and whether) the company can bring its batteries to market -- but I think Solid Power will still have good growth potential even if production slips by a year or two.
That said, I'm still working through all of the company's investor materials, and I expect to have more thoughts on Solid Power's valuation and growth potential in a few days. Stay tuned.