Is QuantumScape Stock a Good Investment Now?

Currently, investing in QuantumScape (QS 2.50%) presents a speculative opportunity. The company, known for its solid-state lithium metal batteries, released its fourth-quarter earnings report on February 12.

As of now, QuantumScape has not reported any revenue because it has yet to commercialize its battery technology. In the fourth quarter alone, its net loss grew from $110 million in the previous year to $115 million, equivalent to $0.22 per share. This decrease in financial health still outperformed analysts' expectations, which had forecasted a greater loss.

For the entire year, the net loss rose from $430 million to $475 million. Although these figures might seem discouraging, they provide clearer insights into the company’s progression towards commercializing its products.

This raises the question: should investors purchase QuantumScape’s stock now, before the company begins shipping its first commercial batteries?

Potential to Transform the Battery Market

Solid-state batteries, such as those being developed by QuantumScape, offer numerous advantages over traditional lithium-ion batteries. While lithium-ion batteries utilize liquid electrolytes, solid-state batteries use solid electrolytes. This change leads to higher density, greater thermal resistance, and faster charging times. However, the production of solid-state batteries is also complicated, costly, and has not yet been mass-produced at a large scale for electric vehicles (EVs).

Thus far, solid-state batteries have been successfully used in smaller devices like wearables and medical implants. Large automotive manufacturers, including Volkswagen, have collaborated with QuantumScape for over ten years to develop these batteries for electric vehicles. Volkswagen recently formed a new subgroup, PowerCo, to test early prototypes in 2022.

QuantumScape’s QSE-5 batteries boast an energy density exceeding 800 watt hours per liter (Wh/L) and can be charged from 10% to 80% in under 15 minutes using a Level 3 charger. In contrast, conventional lithium-ion batteries have a density ranging from 300 to 700 Wh/L and typically need between 20 minutes and an hour to charge to 80% on the same charger.

This innovative technology could potentially replace traditional lithium-ion batteries, yet QuantumScape faces significant competition. Other major automakers such as Toyota, Hyundai, and Nio, as well as smaller startups like Blue Solutions, are all working to commercialize their versions of solid-state batteries.

Timeline for Commercialization

QuantumScape previously anticipated launching its first batteries in 2024, aiming to begin shipping QSE-5 samples to selected automakers in the latter half of that year. However, it remains far from mass production of these batteries.

Looking ahead to 2025, QuantumScape intends to upgrade from its current Raptor separator process to the advanced Cobra separator process, which is expected to improve cell reliability and production efficiency. This new process will be used to produce more refined B1 samples of the QSE-5, which the company plans to distribute to a wider range of automakers throughout the year.

Following the complete transition to the Cobra process and an increase in B1 sample shipments, QuantumScape targets a 2026 launch for its first batteries to a “prospective customer,” likely Volkswagen.

Significantly, QuantumScape does not plan to produce all its batteries independently. The company is pursuing a strategy focused on licensing its technology to automotive manufacturers, which should help manage costs as it develops new battery technologies. Currently, it has secured a licensing agreement with PowerCo, with additional negotiations underway with various automotive manufacturers, as mentioned by CEO Siva Sivaram in a recent investor call.

If this strategy succeeds, analysts project QuantumScape could generate $4.28 billion in revenue with a net loss of $439 million by 2026. Given its enterprise value of $2.2 billion, this valuation appears appealing, correlating to about 0.5 times projected sales for the upcoming year.

However, it’s important to note that the company has increased its share count by nearly 50% since going public in November 2020. This trend may continue as more secondary offerings occur and stock-based compensation rises. The recent trend shows that insiders have been selling shares, which might indicate a lack of confidence and suggest that QuantumScape's stock is unlikely to reach its previous highs in the near future.

Is Now the Right Time to Invest in QuantumScape?

While it is possible for QuantumScape to see significant growth down the line, investors must recognize that it remains a high-risk investment. A cautious approach may be wise, allowing for a small investment at current levels while waiting for more substantial signs of progress before making larger purchases.

Note: Every investment comes with risks and potential losses should be considered before making decisions.

QuantumScape, Batteries, Investment