A Short-Seller Attack on QuantumScape Suggests a Forlorn New Reality for Exotic Batteries
As great as they might be, the best may not be good enough to dislodge trusted lithium-ion
QuantumScape, the sizzling darling of battery investors from Silicon Valley to Wall Street, Europe and beyond, is the object of a fierce short-selling attack. Its assailant is Scorpion Capital, a little-known guerrilla outfit that yesterday released a 188-page, scorched-earth indictment that, in bold, black-and-red font and yellow highlight pen, accused QuantumScape of fraud and other transgressions. QuantumScape’s share price plunged 12.2% by the close of trading.
The report is a relentless, repetitive, often reckless assault that detracts from numerous valid doubts about QuantumScape: As of now, the startup hasn’t produced an actual battery, but only a cell half the size, in ampere-hours, of an Apple Watch. QuantumScape makes much of its supposedly liberal release of data, but many of its battery peers think it’s actually been pretty miserly, and that the data it has released has led to just more questions.
Scorpion made a particularly incendiary accusation: that QuantumScape’s management, while allegedly hiding all these problems, intends to “pump and dump” the stock — to unload their shares after their “lockup” period, the usual time in which employees must wait before selling any stock. In fact, the 150-day lockup period for QuantumScape employees does appear to lift right around the last week of this month, according to its S4 filing with the Securities and Exchange Commission. If that is correct, QuantumScape employees and executives could then sell shares as long as the stock price is at least $12 for any subsequent 20 days within a 30-trading-day period (since they went on sale, QuantumScape shares have never sold for less than $35.85, the price yesterday). Senior executives could sell 25% of their shares.
But there is more to this period for QuantumScape and a dozen or so high-flying battery startups, all promising exotic successors to lithium-ion, the workhorse formulation in every electric vehicle, smart phone, laptop and nearly every other portable electronic device: Some or even most of these startups may end up failing — they may simply not manage to make the jump from the lab to the gargantuan scale required to make money in batteries.
Yet, if some do collapse, it may not matter all that much, battery experts tell me. This is because lithium-ion itself has come so far, and appears to have much further to go. Lithium-ion’s cost and performance appear headed to a mid-decade inflection point that would profoundly curtail the advantage of moving to one of the long-sought battery breakthroughs.
That is, for decades battery researchers have aspired to invent a pure lithium-metal battery — what QuantumScape is working on — and obtain 50% or even more energy than conventional cells. But Dan Steingart, a professor of chemical metallurgy at Columbia University, told me that by the middle of the decade, the performance edge from lithium-metal may only be in the low double-digit percentages. By then, the average cost of lithium-ion batteries is projected to drop to around $100 per kilowatt-hour, the break-even point with conventional gasoline-driven power trains, and to keep falling from there. Electric vehicles will then cost the same as internal combustion. “If QuantumScape fails, it won’t matter a bit because lithium-ion batteries will already have done most of what they need to for EVs,” Steingart said. “There are pathways to get to $50 to $60 a kilowatt hour. When that happens, that will be all that matters.”
“Lithium-ion and advanced lithium-ion have already won the race and are here to stay,” Tyler Lancaster, a principal with Energize Ventures in Chicago, told me in a video call yesterday.
The attack on QuantumScape is in a way unsurprising: For a decade, QuantumScape and its CEO, Jagdeep Singh, were among the most secretive battery startups anywhere. But, since emerging from stealth and going public in November as part of the Spac mania, the company has gradually transformed into a comparative chatterbox: Singh has appeared on CNBC regularly, explaining how QuantumScape’s material will be in a commercial VW by 2024, and was the subject of a big spread in Bloomberg just this week. He has been the subject of numerous stories here at The Mobilist, including this one in September, by far the most popular battery piece produced by Medium the last seven months, beating out even Tesla.
Which is to say that QuantumScape has been the “it” battery company, a stature reflected in its shares, which soared as high as $131 last December, 13 times their initial price. The San Jose, California company has been bound to attract the attention of short sellers, especially since it doesn’t actually earn any revenue, and won’t until at least the middle of the decade, when it expects its battery system to be deployed in a VW.
The Scorpion assault is way over the top, throwing around references to Theranos, the blood test device fraud, and other scams like so much salt and pepper. Battery experts have been scathing: “I call bullshit on this report,” tweeted Jordi Sastre, a Swiss Ph.D student studying solid-state batteries. “I went through the slide deck and found nothing that hadn’t already been openly discussed in the battery community or communicated by [QuantumScape] itself. I’m specially disgusted by the shady analysis by a supposed expert and the amount of misrepresentations.”
“I couldn’t find a single statement that hasn’t already been raised and isn’t obvious,” Sam Jaffe, head of Cairn Research, a battery research firm, told me. “It’s all regurgitation. I read the Hindenburg report on Nikola. It was devastating. It showed all kinds of data, photographs and clear evidence that things were not right. There’s nothing like that in this report.”
QuantumScape itself responded with an 11-tweet thread just after the market close. It said in part that it “stands by its data, which speaks for itself. We have provided higher transparency than any other solid-state battery effort we are aware of, with details on current density, temp, cycle life, cathode thickness, depth of discharge, cell area, pressure.” VW, QuantumScape’s lead investor, declined to comment.
One might ask, as I have numerous times, why QuantumScape doesn’t simply put all the doubts to rest by paying for an independent, third-party validation of its system. So far, Singh has refused.