Assessing the Investment Strategy: QuantumScape
Electric vehicles (EVs)could potentially disrupt the transportation sector, but challenges like slow charging times and limited range continue to hinder wider adoption. Enter QuantumScape (QS, currently trading at 6.74%). The company aims to surpass the limitations of lithium-ion batteries and has substantial backing from Volkswagen. Test results from rigorous performance tests show promise, with new battery prototypes generating buzz.
As the stock is currently 96% below its four-year high and close to record lows, should one consider purchasing or selling QuantumScape? Consider the following factors:
Reasons to buy or hold
QuantumScape's innovative solid-state lithium-metal batteries offer substantial enhancements in energy density, charging speed, and safety compared to conventional battery systems. A notable collaborator in this endeavor is Volkswagen, which has invested over $300 million and co-founded a 50-50 joint venture with QuantumScape to develop new batteries and amplify battery production.
This year, Volkswagen's battery branch, PowerCo, underwent endurance tests on QuantumScape's solid-state batteries, which sustained over 1,000 charging cycles with little deterioration. This implies that an EV equipped with this battery could potentially traverse over 500,000 kilometers (approximately 310,000 miles) without a discernible decrease in range.
Last month, QuantumScape's stock ascended after the company announced the production and delivery of B-sample cells, marking one of its primary objectives for 2024. These cells are now being submitted to automotive manufacturers for comprehensive testing during a rigorous validation process involving A, B, and C prototype cells, prior to commercial production of the final product.
Ultimately, QuantumScape aims to facilitate longer driving ranges for EVs, enable faster charging times, and improve battery safety.
Reasons to sell
Regrettably, QuantumScape faces fierce competition. Toyota's first-generation solid-state batteries boast a range of 745 miles, with second-generation batteries capable of traveling up to 932 miles. Moreover, its batteries can recharge to 80% capacity within 10 minutes. Toyota is planning to implement its solid-state technology in hybrid models as early as next year. In contrast, Nio has already popularized its semi-solid-state batteries, featuring a range of up to 620 miles, among the general public.
To add to its challenges, QuantumScape is currently non-revenue and continues to report substantial losses. During the first nine months of 2024, the company reported a net loss of $364 million. Consequently, funding plays a critical role in QuantumScape's long-term success.
QuantumScape Free Cash Flow (Quarterly) data by YCharts
Moreover, in 2024, QuantumScape accepted PowerCo's license to mass produce battery cells based on its technology. This agreement enables PowerCo to manufacture up to 40 gigawatt-hours (GWh) per year, with the potential to double production to 80 GWh. Thanks to a $130 million prepayment of royalties from PowerCo, QuantumScape's cash reserves have been extended for an additional 18 months, extending up until 2028.
The agreement also allows QuantumScape to adopt a capital-light strategy and reach its gigawatt-hour capacity more quickly than previously planned.
However, QuantumScape's commercial-scale battery production continues to be a work in progress, and according to only four analysts tracking the company, QuantumScape is anticipated to see positive net income as late as 2029.
Given QuantumScape's innovative approach to battery technology, investing in their solid-state lithium-metal batteries could potentially yield substantial returns, considering their promise of improved energy density, charging speed, and safety compared to conventional systems. With Volkswagen investing heavily and showing promising results from endurance tests, the company seems to be making strides in overcoming current EV limitations. (finance, investing, money)
Despite QuantumScape's promising developments, it's essential to consider the intense competition in the market. Companies like Toyota and Nio have already made significant strides in solid-state battery technology, posing a challenge for QuantumScape. Additionally, the company's current non-revenue status and substantial losses may deter some potential investors. (finance, investing, money)
