Solid Power and BMW’s R&D deal offers a sneak peek into the battery industry’s future

Solid Power, one of the leaders in the race to commercialize all-solid-state lithium-ion batteries, has been stumbling of late. But a new deal with BMW might give it the boost it needs.

After going public via SPAC in late 2021, Solid Power’s share price followed the all-too-familiar SPAC bump then bust, trading for much of this year at a discount to its $10 debut. Then, in late November, its co-founder and CEO, Douglas Campbell, announced that he was stepping down, hastening the stock’s slide.

Campbell said that while the company had been able to deliver sample cells to partners BMW and Ford on time, it was having trouble finding talent to staff its facilities and high-quality materials to make its batteries.

Solid Power was founded in 2011, the year before battery pioneer A123 Systems collapsed. The larger company’s bankruptcy undoubtedly left an impression on the founding team. Instead of trying to compete with large battery manufacturers like LG, CATL and SK Innovation, Solid Power has long sought to supply larger companies with battery materials that would enable denser, lighter cells.

To win those large, long-term contracts, Solid Power still has to prove that its materials can be mass produced. Hand-crafting a breakthrough cell in a lab is one thing; making hundreds or thousands of them in short order is another.

Solid Power has been making progress, unveiling a pilot production line in June that went on to make the cells for BMW and Ford. But that line apparently hit a few snags, and production hasn’t been proceeding as quickly as the company would like. It still has plenty of money — over $370 million in cash and securities, according to filings with the U.S. Securities and Exchange Commission — but it needs manufacturing expertise to surmount whatever barriers it’s encountered.

Enter BMW: Today, the two companies announced an expanded joint development agreement in which BMW pays Solid Power $20 million in exchange for the company’s manufacturing know-how. BMW will replicate Solid Power’s pilot production line in Germany, and it will also send battery and manufacturing experts to Colorado to help troubleshoot the original pilot line.

Solid Power will retain the intellectual property to its electrolyte material — good news for Solid Power shareholders. The success of solid-state batteries largely depends on the electrolyte, and IP related to that electrolyte has been at the center of Solid Power’s business plan for years.

The pilot production line was a necessary step to prove that the battery design and, more importantly, the electrolyte could be produced at scale and still live up to the hype. But it wasn’t core to Solid Power’s business.

Ultimately, the startup wants to supply battery manufacturers with its manufacturing knowledge and its electrolyte. Having watched A123 Systems implode after trying to build the entire battery supply chain from scratch, Solid Power didn’t want to relive that experience. Owned-and-operated gigafactories were never part of the plan.

On the other side of the deal, BMW has made no secret that it wants more control over the batteries it installs in its EVs. Automakers previously differentiated their offerings by the fossil-fuel engines they designed and built, and the Bavarian Motor Werke was particularly good at designing and building engines. With internal combustion waning, all automakers have been searching for something to differentiate their vehicles from competitors’. Batteries are an obvious choice since a breakthrough chemistry could let automakers build higher-performance, longer-range EVs.

The Solid Power-BMW deal represents the latest tweak to the battery startup business plan.

Fifteen years ago, battery startups had to do it all themselves — various parts of the supply chain had yet to be built. That meant taking on enormous risks that were tangential, though still essential, to their ultimate goal. As the battery supply chain matured, companies could focus on what they do best.

Today, we’re seeing the battery landscape start to resemble that of the pharma industry. There, small startups pursue novel drugs and platforms that carry significant R&D risks. Once they’ve proven key elements of their approach, large pharma companies either partner with those startups or buy them outright. At that point, the big company will complete clinical trials, scale up manufacturing and market and sell the drug, or some combination thereof.

In short, the science risk is taken on by scrappy startups (and their investors) with novel intellectual property, and the commercial risk is borne by large companies with deep pockets and expertise in bringing products to market.

The battery industry has been trending in that direction ever since A123 went bust. We’ve seen glimpses of it happening already, and Solid Power and BMW’s new deal suggests the evolution is continuing.

Batteries are fantastically hard to make at scale — doubly so with an entirely new chemistry. As automakers and battery manufacturers strive to differentiate themselves from their competitors, and as battery chemistries grow more sophisticated, partnerships like this will be the rule, not the exception.