The Case for Solid Power

Solid Power (NASDAQ:SLDP) has emerged as a $309 million market cap enterprise with a TTM $20 million revenue focus. The company’s core objective is to supply solid state battery technologies for the EV industry and deliver a sulfide-based solid electrolyte for use in solid state batteries. Solid Power predominantly generates revenue by meeting milestone targets in collaborative R&D development endeavors with its key OEM partners. Despite being currently unprofitable and yet to significantly ramp up commercialization efforts, the company’s auspicious progress and potential to capture a vast market opportunity make it an appealing stock.

I am bullish on Solid Power for five key reasons:

1. Solid Power is making promising progress toward automotive qualification
2. The company is well-positioned to scale electrolyte production and commercialization
3. It exhibits strong operational execution
4. The management team and board of directors possess extensive domain-specific experience
5. The valuations are attractive

Understanding Solid State Electrolytes

Solid state batteries utilize a solid material (electrolyte) to facilitate electron movement instead of a liquid material. This represents a pivotal technological advancement in the EV industry as it promises safer vehicles, increased charging capacity, enhanced durability, and greater lifespan.

The Business Model

Solid Power’s business model revolves around licensing solid state battery designs, manufacturing processes, and selling lithium-sulfide-based electrolytes to battery manufacturers. The company stands as a leading entity in the sulfide-based electrolytes market. While sulfide-based electrolytes are less common compared to oxide-based ones, they offer superior performance. However, the technology necessitates a large-scale manufacturing process, and the supply of lithium sulfide poses a significant bottleneck. Notably, Solid Power does not engage in commercial battery manufacturing, a fiercely competitive arena with high capital barriers and narrow margins. By focusing on technology licensing and being a provider of solid state electrolytes, the company collaborates with multiple battery manufacturers and EV OEMs, capitalizing on the potentially lucrative $60 billion electrolyte market.

Battery manufacturing is really hard. It’s very competitive. It takes very large investments. There’s a lot of large incumbents. The margins are tough, and, again, very capital intensive. And so we stand to have a much larger addressable market because of that. We’ll not be competing directly with our customers in many cases. And we’ll avoid the $1 billion gigafactory cost and just be able to invest in the electrolyte manufacturing portion of the technology.

– CEO John Scoter in the November 2023 Company Conference Presentation

Given this strategy, Solid Power steers clear of direct competition with its customers and the exorbitant costs associated with commercial battery manufacturing.

Progress Toward Automotive Qualification

The company’s progression towards automotive qualification is pivotal for integrating solid state battery technology into EVs. Achieving this milestone involves various stages, with Solid Power already producing Pre-A sample 20Ah and EV cells at the outset of 2023. The FY23 10-K underscored a major goal for the year – to produce EV cells for formal entry into A-sample testing.

A major 2023 goal is to produce EV cells to formally enter A-sample testing.

– Solid Power FY23 10-K

The Q3 FY23 10-Q report revealed that the company successfully made its first A-1 EV cell deliveries to BMW in October 2023, marking the formal commencement of the automotive qualification process. These deliveries supported BMW’s demo car program, with additional deliveries anticipated in the coming months. Solid Power’s accomplishment is particularly noteworthy given the years of dedicated R&D efforts. Notably, this places the company ahead of competitor QuantumScape, as QuantumScape has only progressed to the A-0 stage according to its latest commentary in January 2024 (also mentioned in QuantumScape’s Q3 FY23 earnings call). Moving forward, Solid Power anticipates proving more A-sample designs as it collaborates closely with its OEM partners.