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New Battery Tech is Set to Kick EV Markets into Overdrive

New Battery Tech is Set to Kick EV Markets into Overdrive

By now, we all know the EV narrative: Tesla (NASDAQ: TSLA) dominated for a period, sending legacy automakers scrambling to develop their own gas-free alternatives. 

Then 2023 hit, consumers tightened their belts, and sales stayed essentially flat. A mix of political factors and tariffs put the broad EV market into a sorry state:

  • Tesla sales and deliveries are lagging, and the company is resorting to flashy financing deals on its new long-range, all-wheel-drive Model Y to drive demand.

  • General Motors (NYSE: GM) is selling off its stake in a Michigan battery production plant to recoup some of its $2.6 billion investment (selling for $2.1 billion, the divestiture represents a nearly 20% loss). 

  • Ford (NYSE: F) is hiking prices on its Mexico-manufactured EV models, including its all-electric Mach-E SUV, and halting production of in-house electrical and software architecture. 

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So What?

Nothing has changed, essentially, when it comes to EVs’ appeal to consumers. Tech has improved across the board, charging infrastructure is abundant, and a handful of tax credit opportunities help soften the blow of sticker shock. 

In other words, the current malaise is cyclical rather than fundamental:

  1. Increased consumer pessimism means most aren’t willing to shell out for the difference between an internal combustion engine vehicle and an all-electric option. 

  2. Tariffs compound the problem, increasing production costs on already-pricy autos, with China’s rare earth metals and magnet export restrictions tightening margins further.

However, recent developments in battery tech could kickstart electric enthusiasm, dropping prices while drastically increasing range and bringing once-expensive EVs firmly into reach for a much larger target market.

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Solid-State Batteries Help EVs Regain Footing

Solid-state batteries cut out the liquid component comprising today’s EV power sources. This has a multi-pronged benefit:

  1. They’re safer, as liquid components are highly flammable, as seen in some well-publicized news events.

  1. They don’t overheat like non-solid-state batteries do, rapidly increasing charge time (as fast as fueling up a car with gas, in some test cases).

  1. They store more energy in a smaller footprint, increasing range and reducing weight.

Solid-state batteries were recently restricted to lab testing with limited practical application. But 

Factorial, a small private startup in Boston, recently road-tested an all-solid-state-powered EV, hitting speeds as high as 100mph throughout a four-day proving cycle. But you don’t need to be an accredited investor or venture capitalist to get in on the solid-state sector.

Many major tech revolutions occur under what’s known as “multiple discovery,” in which several inventors or companies develop the same product independently and nearly simultaneously due to market-wide tech advancements.

In other words, we’ve reached a point where solid-state batteries are finally viable technically and economically, and a handful of stocks are best-positioned to ride the EV resurgence.


The Main Takeaway

Putting all your eggs into a single basket is the riskiest way to bet on solid-state advancements; nascent tech has more failed companies than 10X hyperscalers. 

Instead, diversify across multiple automotive manufacturers and battery production picks.

Be skeptical when researching stock picks. For example, Nio (NYSE: NIO) claims to have had a road-ready solid-state vehicle since last year, but their product is technically of inefficient, semi-solid-state construction, and Nio’s unique battery rental approach mitigates the otherwise cost-prohibitive consumer unit economics.

Mercedes Benz Group (OTCMKTS: MBGYY)

The German automaker is the best way to invest closely in Factorial itself, as Mercedes is a major investor in the startup (and Factorial’s solid-state batteries were road-tested in an EQS-class sedan). If you want to get in on the ground floor of solid-state or insist on running with a single stock pick, Mercedes is your best bet. 

Quantumscape (NYSE: QS) 

Boasting a direct investment from Volkswagen (OTCMKTS: VWAGY), QS is developing independent solid-state tech and is the only pick closest to a pure-play, publicly traded solid-state battery stock. 

Albemarle (NYSE: ALB) 

Solid-state batteries still use lithium in abundance, meaning Albemarle is a solid pick to capture an expanded EV market while offsetting some risk of betting solely on solid-state’s future. Albemarle shares trade at a steep discount (0.8x book value), and the company’s 2.8% dividend yield offers some cash flow while you wait for an EV rebound. 

That’s it for today’s edition—thanks for reading! Reply to this email with any feedback or let me know which macro trends or markets you’d like me to cover next.

Best Regards,
—Noah Zelvis
Macro Notes

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