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QuantumScape
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== Opportunity to disrupt massive market == '''Inflection point for EV adoption across the automotive industry''' As a developer of next-generation electric vehicle batteries, QuantumScape is positioning itself to disrupt the battery technology landscape. With about 90m+ vehicle units produced by the industry in a normal year, total TAM for vehicle batteries represents at least $450bn annual sales opportunity, once EV penetration reaches 100% of light vehicle production. In the short term, the company’s SAM directly reflects that of BEV penetration of new vehicle production, which sits around 5-6% as of year-end 2021 (or ~$25bn in annual sales). Furthermore, QuantumScape is looking to commercially deploy its technology in the 2024 timeframe which should align with clear acceleration in EV penetration across the globe. As Deutsche Bank look forward to the rest of the decade, it expects BEV adoption to pick up considerably in the years ahead, forecasting about 20% penetration of full BEV vehicles on total light vehicle production by mid-decade. By 2030, the penetration rate could accelerate to >47% (43m units annually). Deutsche Bank thinks this transition will largely be driven by China and Europe in particular, reaching 43%/25% penetration in 2025, respectively, and 81%/70% by 2030. Of late, automakers have been pulling forward the timeline to eliminate new ICE vehicle production and transition toward full EV sales in accordance with increasing regulation. At the same time, consumer sentiment is quickly shifting toward electric vehicle alternatives as more compelling products come to the market, led by top nameplates including Tesla Model 3/Y, Ford’s Mustang Mach-E, and a slew of promising upcoming models. Notably, North American OEMs such as GM, Ford, Rivian and Tesla all plan to introduce industry-first BEV pickups to market which could serve to drive increased adoption in the US; the region has historically lagged others in EV adoption rates in past years. To date, total commissioned battery capacity globally is about 800+ Gwh, with LG and CATL leading in planned production capacity. Based on its forecast of about 18m units of EV by 2025, with an average of 65Kwh battery pack, Deutsche Bank estimates total battery demand of about 1,168Gwh, and as illustrated below, from now until 2025, we’ll need about 362Gwh in capacity addition to meet that EV production expectation. '''Regulatory environment boosting EV adoption''' In addition to growing consumer demand, the transition to electric vehicles has been further facilitated by increasingly stringent government regulations across the globe, particularly in Europe and China, leading to faster EV adoption in those regions. In the US, the Biden administration has laid out more aggressive targets to reach carbon neutrality and eliminate new ICE vehicle sales. Specifically, the President has outlined plans to reduce emissions by about 50%+ by 2030 on the road to carbon neutrality by 2050. In addition, the President has set a goal to have EVs account for roughly half of all new vehicle sale by 2030. The target is backed by leading US automakers including Ford, GM, and Stellantis, which have committed to reaching 40-50%+ by that timeframe. At a UN climate summit last November, GM and Ford doubled down on their commitment, by signing a declaration to phase out new ICE sales entirely by 2040 as well. To support the rapid transition toward electric vehicles, the White House recently passed a new bipartisan $1tn infrastructure bill, which includes $7.5bn to build out the EV charging network further throughout the country. Considering the lack of infrastructure is a major inhibitor to accelerating EV growth in the coming years, the plan could significantly improve adoption among consumers as recharging becomes more accessible. On the state level, 45 states and the District of Columbia all provide additional incentives for EVs either through a specific utility or state legislation ranging from tax credits/rebates to fleet acquisition targets, and more. While the US has been accelerating its emissions reduction initiatives of late, it still lags other regions noticeably, with the EU and Canada both outlining plans to eliminate the sale of new ICE vehicles altogether as soon as 2035. Nevertheless, the emphasis on reducing emissions globally continues to gain momentum, facilitating the infrastructure build out and encouraging increased user adoption in the near term. In China, the central government began requiring automakers producing >30k units annually to make or import at least 10% of the annual fleet using electric vehicles beginning in 2019 with a target for 20% NEV penetration by 2025 and 40% by 2030. At the same time, the government offers $3,600 subsidies for EVs with >400km of range and $2,600 for EVs with 250-400km of range (currently getting phased out however), considerably driving consumer and OE adoption as a result. Over in Europe, the EU recently proposed legislation that would require emissions cuts of 55% for cars from 2021 levels by 2030 (up from 37.5% currently) and 100% by 2035; to get there, the region would phase out the production of new ICE vehicles by 2035. As such, automakers continue to accelerate the transition toward NEVs to avoid paying hefty regulatory fines, and robust consumer demand continues to support a faster pace of adoption. The more forward-thinking regulations in the EU and China have dramatically driven adoption among corporates and consumers alike, giving the regions a solid lead in the transition on the US and supporting a budding global EV market. '''Historical Li-ion dominance – time for a change?''' A large driver of the accelerated adoption of EVs throughout the industry has been the reduction in cost of batteries. Of the roughly 4.6m BEVs sold globally in 2021, all are powered by traditional lithium-ion battery cells which have been in use for various consumer products since the early 1990s. Through ongoing technology advancements and the development of new battery chemistries, the traditional li-ion cell has made continued improvements in cost, size, and performance over the past 30 years. Now it is the dominant battery type used for automotive. Nevertheless, batteries remain costly, amounting to about $132/kWh at the pack level as of 2021 despite continued cost improvements for decades (down 89% since 2010). Many industry players have been targeting to take down the cost of batteries below the $100/kWh threshold at the pack level, which would enable EVs to reach cost parity with ICE comparable vehicles, leading to a meaningful inflection toward zero-emission vehicle adoption. While the industry seemed well on its way to reach this goal over the next few years, the recent spike in input cost prices has started pushing battery costs back up. The traditional lithium-ion battery cell landscape for EVs is predominantly controlled by a select few manufacturers including CATL, Samsung SDI, Panasonic, and LG Energy Solutions. Over the coming years, the latest battery advancements and growing scale are expected to drive the cost closer to and below $100/kWh, with Ford targeting about $80/kWh by 2030 and Tesla around $50-60/kWh over the next few years. Unfortunately, ongoing supply constraints for numerous key raw materials (i.e. nickel, lithium, carbon, etc.) needed in the production processes for these batteries has disrupted the cost roadmap, leading to an increase in $/kWh for the first time in late 2021 and into 2022. While the cost of traditional li-ion batteries has decreased materially, its trajectory appears to be plateauing, and the technology carries other shortcomings that QuantumScape’s solid-state batteries are looking to address. For instance, traditional lithium-ion batteries can only fast charge at the expense of the battery’s life. Perhaps most importantly, there appears to be a ceiling on the energy density provided by these cells of about 300Wh/kg, without improvements in anode composition. While enough to provide the desired range for an EV (>300 miles), increasing power density could allow for fewer cells (lower cost) and a simplified architecture if considerable advancements were made. The use of a lithium-metal anode in the cell, as deployed in QS batteries, is expected to serve as a material step function toward reaching a higher density 400Wh/kg+. At the same time, the use of a solid-state separator (necessary for li-metal anodes) and no host material for the anode could allow for increased safety (fewer dendrites), and fewer materials in the cell could simplify the manufacturing process of the battery and deliver robust cost savings at scale. Altogether, the goal of solidstate batteries would be to offer improved performance from higher energy density, lower costs to produce at scale, and improved safety in the battery system, which could position the next-generation form factor to significantly disrupt the space typically dominated by traditional li-ion batteries. '''Solid state battery efforts throughout the industry''' Many automakers throughout the industry recognize the value-add opportunity that solid-state batteries could provide in terms of cost, performance, and safety, and have begun working on the development of proprietary SS configurations both alone and through collaborations with leading li-ion battery makers. The issue to date has been the ability to scale the technology to deliver the desired performance of the battery without degradation, in all environmental conditions, in a cost effective manner. As such, if a battery developer is able to deliver scalable solidstate batteries that meet OEM requirements, it could potentially capture a decent share of the overall battery market over time. Traditional battery suppliers have struggled to make any meaningful advancements considering their focus is largely on improving the existing li-ion battery performance. As a result, numerous dedicated SS-type battery developers have come to market in recent years to tackle the problem head-on.
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