Volkswagen Group just raised its stake in stealthy battery builder QuantumScape with a substantial $100 million bet. The world's automotive giants are in an expensive race for the lead in electric vehicles and this is just their most recent capital move.     

QuantumScape was founded in 2010 as a Stanford University spinoff and was initially funded by ARPA-E for an "all-electric battery." That dubious idea was soon abandoned for a more traditional lithium metal solid-state approach.  ("For battery nerds, 'solid-state' is synonymous with 'lithium metal anode," according to battery expert David Snydacker of Dosima Research.)

A few Silicon Valley publications have labeled QuantumScape a "unicorn" since it garnered a valuation of more than a billion dollars in its most recent funding round (according to PitchBook Data.) That's a heady valuation for a company still deep in its development phase and without significant revenue. (Theranos had a valuation of $9 billion at one point.)

Other investors in QuantumScape include Kleiner Perkins, Prelude Ventures, Lightspeed Venture Partners, Capricorn Investment Group, and Khosla Ventures. Optical networking aficionados will remember QuantumScape's CEO Jagdeep Singh as the very successful founder of Lightera and Infinera. 

Dipender Saluja, managing director at Capricorn Investment Group is on QuantumScape's board, as is VW's Axel Heinrich. Bruce Sohn, former president of First Solar once served as president of QuantumScape.        

Lithium metal anodes and the solid state battery 

QuantumScape is not the only company considering solid state batteries. Startups working on this technology include Ionic Materials, Solid Energy (General Motors is an investor), and Prieto Battery. Sakti3, acquired by vacuum builder Dyson, was developing solid state batteries, as was the Bosch-acquired Seeo with its polymer electrolyte. Toyota has made significant investments in solid-state battery development. 

Snydacker added: "Lithium metal anodes go back to the very first lithium battery, invented by Exxon in the 1970s. In the four decades since Exxon's battery, many generations of battery scientists have tried and failed to create a commercial viable lithium metal battery that is rechargeable." 

"The major challenge with lithium metal is its propensity to undergo strong, often violent chemical reactions with almost every known material. Approximately 99.9 percent of materials undergo a chemical reaction when they are contacted with lithium metal. And, most of these reactions propagate continuously without passivation. In rare cases, the reaction may passivate and a form a 'kinetically stable' surface on the lithium metal. A mere 0.1 percent of materials are thermodynamically stable in contact with lithium metal. These materials can be used to protect the surface of lithium metal and facilitate durable operation of a battery."

Automotive giants vying for an advantage in electric vehicles

Volkswagen has worked with QuantumScape since 2012 and claims to have tested sample battery cells that perform at "automotive rates of power." Even with more than eight years of development and significant funding, it's still going to take a joint venture between VW and QuantumScape another seven years to get to full production. That 2025 target for QuantumScape-electrified powertrains reveals the deep technical and execution challenge of bringing a new battery technology to full industrial production. 

According to VW: "A solid-state battery would increase the range of the E-Golf to approximately 750 kilometers compared with the present 300 kilometers. This battery technology has further advantages over the present lithium-ion technology: higher energy density, enhanced safety, better fast charging capability and — above all — they take up significantly less space."    

Greater energy density is the most important driver of solid-state lithium metal batteries, said Snydacker. "Energy density will remain a key metric for batteries for two reasons. First, for an electric vehicle with a fixed battery pack size, cells with higher energy density enable a longer driving range. Second, for an electric vehicle with a fixed range requirement, cells with higher energy density enable a smaller cheaper battery pack. New exotic chemistries with high energy density may be more costly at first, but in the long run, as manufacturing processes mature, the cost of a battery approaches the cost of its raw material. Every kilogram of savings in the battery translates to a kilogram of savings in raw materials."

Corporate investors making up for lack of VC interest

As Ben Kellison, GTM's Director of grid research, recently noted, "Strategic investors have really taken over grid VC investment over the last 18 months or so, leading to lower total investment totals, but more meaningful investments." The bulk of "grid" investment still goes to energy storage technologies.  

So why does battery technology seem like a minefield to most traditional venture capital investors? 

Shahin Farshchi, a partner at VC investor Lux Capital, spoke of the VC mismatch of investing in new battery technologies. Faced with the harsh reality of thermodynamics, battery startups have to make enormous efforts in time and capital to make just "incremental gains," often seeing just "single digit percentage performance improvements at the expense of another parameter." 

VCs are conditioned to seek product improvements that wreck markets, not incremental gains. But Farshchi would not dismiss QuantumScape's chances, acknowledging, "VC is a game of special cases."