Liquid State to Solid State: The Next EV Transformation

There has been a tremendous amount of interest surrounding the electric vehicle (EV) space and prices of these stocks have gotten a bit crazy. Many of these stocks have had single day turnovers of their float, which is a major indication of a top.

While the frenzy has been palpable, where is the opportunity?

Many traders are looking for the next Tesla, but Tesla transformed the way people think about EVs. As a result, they’ve been awarded with an 80% market share in U.S. EV sales. Who will be the next company to “transform” the next generation of electric vehicles?

EV in Liquid State

The first point to consider is whether the companies that you’re looking at are just following the current trend. For example, Nio Inc (NYSE: NIO) has seen its price explode from $2.11 to as high as $57.20 over the past year. They are a Chinese company that is producing luxury vehicles with 5,6 and 7-seat models. Now, a six-seat model is unique for a vehicle, but is it transformational? I would guess that it’s not.

Then there are companies like Electrameccanica Vehicles Corp (NASDAQ: SOLO). They are manufacturing one-seat models with three wheels. That just sounds like the next Smart FourTwo or the three-wheel vehicles in the U.K. that Bean would make fun of. Wouldn’t you rather have a used Nissan Leaf for the same price that can seat five?

EV Transformation

Many are looking at hydrogen as a power source for electric motors and powering EVs. Looking at fuel cell stocks like Plug Power Inc (NASDAQ: PLUG) have really low gross margins and negative operating cash flow. Fuel cells as a profitable business is still just out of reach and there needs to be major investments into infrastructure. While they may end up being a major player and may be transformational, it may still be just out of reach.

That leads us to solid-state battery technology. This is an innovation that requires not change in how power is delivered but will improve upon existing infrastructure.

Fisker made waves several years ago with the announcement that they were going to incorporate solid-state battery technology in their next production vehicle. The company has since become public through a SPAC (NYSE: FSR) and announced the Fisker Ocean. However, it will be sporting the old liquid-state batteries that everyone else if doing.

Sure, these companies are tweaking old technology to get more range and output, but this is largely done by increasing the size of the batteries. Not exactly enough to push already extreme valuations significantly higher.

EV in Solid-State

For around 45 years, developers have been pursuing the goal of producing a solid-state battery. The principle is to make a solid-state electrolyte allowing lithium ions to move, therefore creating a power source.

In recent news, Quantumscape Corp (NYSE: QS) announced the results of their solid-state battery test and proclaimed that they have all of the pieces in place to produce a solid-state battery. This is great news for the industry and the future of electric vehicles. This is essentially a plug and play technology that could potentially allow liquid-state batteries to be swapped for solid-state. As an investment, QS is still going to be quite volatile, but could be a huge opportunity if everything falls in line for them.

However, QS isn’t the only company that is about to begin production of solid-state batteries for the EV industry. In fact, this company has been producing electric and hybrid vehicles for a long time. The company is Toyota Motor Corp (NYSE: TM).

A report from the Nikkei this week says that the company expects to sell the first EV with a solid-state battery in the early 2020’s. Toyota has over 1000 patents for this technology and plans to unveil a prototype by 2021!

TM Chart

For the past thirteen years, TM has done very little from a price standpoint. However, in the past week the company has broken out to a new all-time high on significant volume. The current trend that began in March 2020 accelerated since early November.

The recent breakout is a major breakout from a long-term ascending triangle that had an $80 range. With the breakout at $140, it gives a target price of $220.

Conclusion

Trying to find companies that have the potential to produce transformational technology or other innovations are never easy to identify and the EV industry is no different. However, it can be relatively easy to identify companies that are just doing what everyone else is doing. Looking at solid-state battery technology is one are that isn’t new but is getting a lot closer to coming to market. Hopefully this post gives you a lay of the land and can help you better navigate the EV waters.

Learn how to deal with uncertain markets by learning about the Vomma Zone. Not a subscriber? Become a TheoTrade member.