Why Kensington Capital Stock Charges Higher Today

What happened

Shares of Kensington Equity Acquisition (NYSE: KCAC) jumped 18% at the opening on Friday after the special purpose acquisition company, or SPAC, said its pending merger with QuantumScape was nearing completion. QuantumScape is a start-up company with a lot of potential and a lot of uncertainty, but investors seem excited about the possibility of owning its shares.

So what

Kensington Capital was set up earlier this year as a so-called blank check company, which is a shell that goes public and then merges with an existing business. SPACs have been a popular route to public procurement this year, with Galactic Pristine Backgrounds, DraftKingsand Nicholas among companies that have gone public this way in the past 12 months.

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Kensington announced plans in early September to merge with QuantumScape, which is working to develop a solid-state lithium-metal battery for electric vehicles and other applications. In theory, solid-state designs have many advantages over the lithium-ion batteries currently in use, as they are more stable and offer greater energy density than what is available today.

The higher density should mean more miles per charge, and with fewer batteries needed, it should reduce the weight of electric vehicles. But for all the potential of solid-state batteries, trying to bring them to market has proven difficult.

Investors seem willing to accept the risk associated with this nascent technology. Shares rose on Friday after Kensington Capital announced shareholders would be asked to vote on the merger on November 25, meaning the deal could close in the coming weeks.

Now what

You don’t have to look any further than what happened with Nikola to see the risks of investing in early-stage technologies through a SPAC. That said, there’s a lot to like about QuantumScape.

Bill Gates is an investor, just like once was You’re here (NASDAQ: TSLA) CTO JB Straubel, who sits on the board of QuantumScape. Straubel said he believes “the company has an opportunity to redefine the battery landscape.”

Perhaps most importantly, QuantumScape has the automaker volkswagen (OTC: VWAGY) as an investor and customer. Volkswagen wants to be a leader in electric vehicles, creating a huge potential market for QuantumScape batteries.

Assuming all goes as planned, QuantumScape will soon trade on the New York Stock Exchange under the symbol QS. It’s still in its infancy and some caution is warranted, but investors have good reason to be excited.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

Sallie R. Loera