We may have a game-changing new technology in the electric vehicle sector.
This week, Japanese automaker Toyota Motors (TM -1.14%) said it had greatly simplified the process of making solid-state batteries for electric vehicles, an elusive technology that has thwarted research departments for years. If viable, the solid-state batteries could bring major improvement to Toyota's electric vehicles by improving driving ranges, charging times, and costs. The largest carmaker in the world -- it sold over 10 million vehicles last year -- has been behind the eight ball when it comes to rolling out electric vehicles, making this breakthrough a potentially huge deal for the transition from internal combustion engines to climate-friendlier battery-powered cars.
Here's what electric vehicle investors need to know about these new solid-state batteries from Toyota.
Longer range, faster charging, cheaper cost
Solid-state batteries would improve, well, everything with electric vehicles. The current liquid-based batteries are costly and can make electric vehicles out of reach for many car shoppers. For example, the average electric car today costs $64,000 in the United States, which only the richest in society can afford.
With this new process breakthrough, Toyota said it could double the range of its electric vehicles to 745 miles on one charge while reducing charging times to under 10 minutes. Solid-state batteries will also be much safer than liquid-state batteries, which have a tendency to catch on fire if not built properly, a major downside that many electric vehicle owners know painfully well by now.
Using solid-state batteries can improve the value proposition for these higher-end electric vehicle shoppers, but can also bring about more affordable models to the masses by putting smaller batteries in shorter-range vehicles. Affordability will be important for the electric vehicle boom to continue this decade. Even with all the growth from companies like Tesla, electric vehicles only accounted for 7% of new car sales in the United States in the first quarter. Even if electric vehicles made up 100% of new vehicle sales within a few years (it will likely take much longer) it will still take 15 more years for the entire U.S. car industry to go electric, given that the average car owner keeps their vehicle for 10-15 years if not longer.
Temper expectations on commercial rollout
Technological developments in the automotive space are slow-moving. Don't expect anything different with Toyota's solid-state batteries. The company said it doesn't expect to use solid-state batteries in production for electric vehicles until at least 2027, meaning we are all likely sticking with the heavier liquid-based batteries for the next five years.
That doesn't make solid-state batteries something investors should ignore. You just shouldn't expect an immediate impact on the companies in the space.
Thinking big picture
Investors are clearly excited about the potential for electric vehicles. Companies are investing tens of billions of dollars into new battery technologies and manufacturing processes to enable the transition from gas-powered to electric cars. Consumers will spend a lot of money on electric cars over the next few decades. If even half of the 67.2 million new car sales go electric within the next 10 years and sell for an average price of $20,000, that would be $672 billion in revenue from electric car sales every year.
Right now, investors are betting that Tesla will remain the leader in electric vehicles and capture a lot of this growth, with the stock currently sporting a market cap close to $1 trillion. But this solid-state battery announcement shows the danger of investing in disruptive industries. These industries are typically hyper-competitive and make the current leaders a lot more fragile than investors expect. We are seeing this now with Rivian taking rapid market share in the premium electric vehicle space. If Toyota leads the industry in solid-state batteries, it could end up dethroning the current leaders such as Tesla.
Stay cautious when investing in electric vehicle stocks.