Welcome back everyone!
I’m Jordan Giesige and this is The Limiting Factor.
This is the first of three videos on QuantumScape – the good, the bad, and the ugly.
We’re gonna start with the ugly, which is the short seller report by Scorpion Capital
claiming that QuantumScape is an outright fraud.
I’m gonna walk you through 7 ways in which that report was misleading.
To save you the time of watching the full video, in my opinion, the Scorpion report
is one you can file directly to the trash.
That’s not to say I don’t have reservations about QuantumScape, but rather, my opinion
is that there are so many half-truths, falsehoods, misinterpretations, and such a biased slant
that the report is rendered useless from an investing lens.
Before we begin, a special thanks to my Patreon supporters and YouTube members.
This is the support that gives me the freedom to avoid chasing the algorithm and sponsors,
and I hope will eventually allow me to do this full time.
As always, the links for support are in the description.
Back to Quantum Scape.
The Scorpion report is 188 pages long and it contains a lot of repetition.
I’ve picked 7 examples that pretty well encapsulate what’s repeated throughout the
report.
I’m not going to get into the parts of the document that are pure speculation or financial.
As much as possible, I’m gonna stick with the technical.
Let’s start with an example of taking information out of context.
The report says that QuantumScape cherry picked their tests, and that the use of a symmetric
cell is proof of this.
They quote Jeff Dahn’s website as saying that symmetric cells are quote “useless
from a practical point of view”, unquote, although they can provide other significant
information.”
If we look at the original web page they took that information from, which is linked at
the bottom of the slide, it’s a web page talking about why symmetric cells are so valuable
for researchers.
The full sentence is “Although the cells have an average voltage of zero volts and
are useless from a practical point of view, they can give vast information about reactions
between electrode materials and electrolyte.”
Without getting into the weeds here, a full cell is the term used to describe batteries
that have different material on the cathode and anode, which generates voltage.
Symmetric cells are lab cells where the cathode and anode are made of the same material, allowing
the electrolyte to be the target of the test.
In any experiment you need a control and that’s what a symmetric cell does.
It gives information about the electrolyte by controlling for the cathode and anode.
Furthermore, symmetric cells typically use pure lithium metal on both the cathode and
anode.
What’s the main difference between a conventional battery versus a solid state battery like
QuantumScape’s?
The solid electrolyte and the pure lithium metal anode.
What did we just say the two key features of a symmetric cell are?
It targets the electrolyte and uses pure lithium metal on just on the anode but also the cathode.
This is why, in this specific slide, QuantumScape used a symmetric cell.
They ran a test at increasing power to stress test their solid electrolyte and prove that
it resists dendrites.
Dendrites are growths of pure lithium metal that occur when the battery is charging and
discharging.
If they grow tall enough, they can pierce the solid electrolyte between the cathode
and anode, shorting out the battery.
The more power you push through a cell during charge and discharge, the more likely it is
that dendrites form.
In other words, the test is an appropriate test to show resistance to dendrites.
I’d also be interested in seeing data that shows not only charging, but discharging,
to find out how the cell reacts to the stress test when the current is reversed.
However, this is more out of curiosity than necessity.
To summarise, Scorpion took a positive sentence from the Dahn Research Group website, underlined
the part that suited their narrative, shortened and paraphrased the positive words, then applied
the skewed logic to QuantumScape’s use of a symmetric cell.
However, QuantumScape’s choice of test was appropriate, if not overkill for the purposes
of the presentation.
I say overkill because it’s a stress test that the general public and short sellers
didn’t understand.
This slide showing full cell data is more appropriate.
The fact the QuantumScape provided the performance of a full cell for over 800 cycles is evidence
that not only does the cell resistance dendrites, it does so with a functional battery cell.
This test doesn’t require any specialty knowledge to understand and it’s actually
better proof of dendrite resistance.
Next, let’s look at an example of exaggeration by Scorpion.
Cell Press has a form called ‘Standardised data reporting for batteries.’
Alexandra K. Stephan, Scientific Editor at Joule did a nice write up on how this form
came about.
T he short story is that the purpose of the form is to standardise the information required
for articles in the Cell Press journal, improve transparency, and improve reproducibility.
If you look at the form itself, it says that authors are encouraged to complete the form
as supplemental information, and that not doing so may slow down the peer review process.
This makes sense, because the form tells the reviewers if the manuscript contains the information
that they’re looking for, and if not, why not.
I can relate, it frustrates the hell out of me when a key piece of information is missing
from a journal article with no information as to why.
In other words, the Cell Press form is like any checklist, it’s to make sure you don’t
forget things that are useful and important.
What does Scorpion capital say this form is?
They say the form is to prevent fraud, the information requested is a minimum for publication
and credibility, and an oath of honesty.
That’s far from the Cell Press form’s actual purpose, which is to improve their
review process and the quality of information in their articles.
Even better, the Cell Press checklist wasn’t published until January 2021, one month after
QuantumScape’s presentation.
So, unless QuantumScape has a TARDIS, there is no way they could have completed this form
a month before it was published.
In the next slide, Scorpion is trying to apply common sense, but they just end up showing
how shallow their knowledge of battery science is.
Unfortunately, with batteries, common sense almost never applies.
One of the QuantumScape graphs shows the energy going above 100%.
Scorpion’s solid state expert claims this is a trick, and that they manipulated the
underlying data.
Let’s look at how their solid state expert is misinterpreting the data.
QuantumScape has stated that they benchmark 100% capacity to the first cycle after the
formation step.
Formation is charging and discharging the battery and it’s part of the manufacturing
process.
After formation, the energy capacity of QuantumScape’s batteries tends to increase just a bit due
to stabilization of the interfaces between the cathode, anode, and electrolyte.
In other words, after the battery’s broken in, its performance increases.
This can happen in liquid electrolyte batteries as well, but for different reasons.
So yes, it’s common to see battery cells going above the 100% mark and it’s expected
for QuantumScape’s cells.
This is a well-known phenomenon and not a trick.
Let’s look at a claim of outright fraud by Scorpion.
They claim this is fake data.
Their reasoning is that because QuantumScape’s data in blue appears to be flawless in comparison
to the conventional battery cell in grey, that QuantumScape’s data must be fraudulent
because…it’s too perfect.
When a battery is charged, the battery should charge at a constant rate, and if the charge
data is sampled at a constant interval, it creates a perfect graph.
So the question that should be asked of this graph is, “Why is the data from the conventional
battery cell more intermittent?”
Note that the actual slope of the line is smooth, indicating that the charge rate is
smooth.
However, it appears that the data wasn’t sampled at a constant rate.
I say this because although the line is a smooth arc, there’s compression and gaps
between the data points.
This means the data may have come from different testing equipment.
I contacted QuantumScape and they confirmed that the data in the blue line for their cell
was from their own testing equipment, and the data in the grey line was from a third
party source and was of a Tesla on a supercharger.
I’m satisfied with that response because it can fully explain the variation in data
between the lines simply and cleanly.
Next, the Scorpion report leaned heavily on anonymous sources like former employees.
I have a hard time putting faith in these claims for several reasons.
First, as we’ll see later in the video, the claims of those employees could have been
compromised in several ways because, among other things, they typically received compensation.
Second, as we saw a moment again, Scorpion’s experts don’t appear to have a good grasp
on Solid State technology, so how can we trust that the employees they consulted know what
they’re talking about.
Unfortunately, there’s no way to know about these first two.
But, some of the former employee claims can be vetted somewhat.
In the claim on screen, an employee is saying that QuantumScape was producing a lot of scrap
when he or she worked there.
If an employee left QuantumScape more than two years ago, QuantumScape would be in a
dramatically different stage of development than they are now.
A lot of what the former employee said is exactly what’s expected at bench scale.
At bench scale, a start-up is just trying to get a product, process, or material to
work.
This can take thousands of iterations, and 99% or more of those iterations would be a
technical failure but are inherent in development, particularly in battery development.
For example, Sila Nano went through 35,000 iterations before they landed on something
that worked.
That’s roughly 15-20 cells a day for the 8 years it took Sila to develop their chemistry.
That’s a 99.9999% failure rate.
After a start-up has landed on what material they are going to use, they can start building
in more automation.
With automation comes precision, and with precision, fewer scrap cells and waste.
QuantumScape is primarily developing new materials and should be able to leverage existing manufacturing
processes.
This means that once QuantumScape optimises their material, they should be able to move
from bench scale to lab scale within a year or two compared to what may have been several
years for Maxwell DBE.
A pilot line is a different story altogether and will take several years, but bench to
lab scale can happen rapidly if off the shelf equipment is available.
Currently, QuantumScape is at lab scale because they haven’t yet built a pilot line.
I don’t have information about how long they’ve been at lab scale, but I suspect
they moved to lab scale recently given that they only appear to have finalised their solid
state material in the last year or two.
How long ago did this specific employee of the five employees Scorpion cited work at
QuantumScape?
I suspect it’s more than two years ago given what they’re describing.
This means we can throw out most of what that employee said to Scorpion.
They were describing what we’d expect from a bench scale process.
In fact, I’m left impressed more than anything.
If QuantumScape was building 300 cells a day, it sounds like they were using serious brute
force to crack the solid state problem.
The employee states that of those 300, few were okay to test.
Why would so few of the cells be candidates for testing?
Solid State electrolytes like the one QuantumScape is using are brittle.
Any microscopic cracks in this material would result in the test cell failing.
With manual handling and little to no automation, it’s no surprise that many of the cells
would fail.
How many is difficult to know and it’s also hard to know if the employee here was exaggerating
when he or she said few.
Regardless, it’s no basis to question whether QuantumScape can build 100,000 engineering
samples a year with a fully automated line in 2023.
Those 100,000 cells would need to be useable cells, but it’s only 400 cells per day.
That peanuts compared to gigafactories, which pump out millions of cells per day.
Next the Scorpion report claims red flags where there’s actually no red flag.
In this slide, Scorpion claims that QuantumScape is hiding something because they’re using
different charge and discharge rates in different slides.
In other words, they’re saying that QuantumScape should have shown a cycle life slide using
QuantumScape’s maximum 15 minute charge rate.
This is a strange expectation if we put it in the context of ICE vehicles.
The 15 minute charge time is a maximum performance figure.
The 800 cycles is an expected durability figure.
Let’s say a legacy auto company claimed their vehicle could do 0-60 in 4 seconds,
and also provided a warranty on the engine of 240,000 miles.
Could you rightly expect that the vehicle would last 240,000 miles if all those miles
were logged on a drag strip doing 4 second 0-60 runs?
That’s an easy no.
Moving along, there’s a bonus point on this slide.
Scorpion claims that QuantumScape is burying things in the fine print, which is the pot
calling the kettle black and not even accurate.
This is a normal sized font when we look at the original slide.
In fact, the way the information is presented in this graph is actually more clear than
I’ve seen in most research papers.
This is what burying things in the fine print looks like.
A full page of block font that contains gems like:
“The experts have typically received compensation for their conversations with us and may have
conflicts of interest or other biases…”
“The former employees… and… the information they have provided may be outdated.”
“The quotations may be paraphrased… and/or summarised at our discretion and do not always
represent a precise transcript of those conversations.”
In other words, the quotations Scorpion provided were selected for negative bias, the transcripts
may have been altered, most of the informants were paid, the information possibly outdated,
and the informants may have had a bone to pick with QuantumScape.
In summary, if you’re looking for insights into what’s happening at QuantumScape, you
can learn more by looking at what’s wrong in the Scorpion report rather than what’s
right.
The seven examples illustrated in this video were just a sample platter and I can do the
same with most of the rest of the 188 page document.
Scorpion is a short seller.
All too often, short sellers make their living off of developing a negative narrative around
company, with no regard for the lives of the people they’re affecting, while doing it
under the banner of a healthy free market.
That’s not all short sellers, but unfortunately, it happens enough that you question the utility
of short selling and its role in markets.
In this case, in my opinion, the purpose of the Scorpion report wasn’t to inform, it
was to manipulate.
In the next video we’ll look at The Bad, which, in my view, is the ways in which QuantumScape
fumbled the ball in terms of their communications strategy.
Regardless of whether QuantumScape’s materials level discovery breaks through to customer
products, it’s already being treated as a victory, which I view as premature.
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