QuantumScape Equity: Should I Invest in Buying, Selling, or Maintaining?
QuantumScape (QS, up 8.21%), a company pioneering solid-state lithium-metal batteries, went public via a SPAC merge on Nov. 27, 2020. Its stock debuted at $24.80 and peaked at $131.67 within a month, but as of now, it trades around $5.
Investors were initially intrigued by QuantumScape's innovative solid-state batteries, which offer advantages like lower volatility, superior heat resistance, and faster charging over traditional lithium-ion batteries. However, enthusiasm diminished as the company continued to push back its commercialization timeline.
To this day, QuantumScape hasn't commercially launched any batteries or generated substantial revenue. Thus, investors are left pondering over whether to take a gamble on this fledgling energy stock or wait for proof of its business model's profitability.
QuantumScape's uphill battle
Solid-state batteries utilize solid electrolytes rather than the liquid electrolytes found in lithium-ion batteries. This makes them more stable but also pricier and harder to manufacture in high volumes. Although solid-state batteries are already employed in smaller devices like wearables and pacemakers, they have yet to make a significant impact in mobile devices or electric vehicles.
Despite the challenges, QuantumScape has been relentless in its pursuit of advanced batteries. Its QSE-5 batteries boast an energy density exceeding 800 Wh/L, significantly surpassing the average density of 300-700 Wh/L for lithium-ion batteries, and can be charged from 10% to 80% within 15 minutes.
QuantumScape finally began producing and distributing QSE-5 battery samples to some automotive clients in Q3 2024, with plans to increase low-volume shipments for testing purposes while transitioning to its new Cobra separator process. This process is expected to improve battery cell reliability, yield, and manufacturing efficiency, thereby enabling commercialization and mass production by 2026.
Analysts estimate QuantumScape to incur net losses of approximately $500 million in 2024, 2025, and 2026 before potentially generating $7 million in revenue in 2026. Given its $1.9 billion enterprise value, those revenue figures might not be as impressive.
The bullish vs. bearish stance
The optimists believe that QuantumScape can expand its operations and secure an early edge in the growing solid-state battery market. They will cite research indicating a 30% annual growth rate from 2023 to 2030 and QuantumScape's backing by Volkswagen, which has collaborated on battery development for over a decade. Volkswagen even launched a group, PowerCo, to test QuantumScape's batteries in 2022.
Pessimists, meanwhile, anticipate further delays and ballooning expenses as QuantumScape works towards commercialization. Its $841 million cash reserve at the end of the latest quarter notwithstanding, it has been diluting shareholders via secondary offerings to amass resources. Its outstanding share count has increased by almost 50% since its initial public offering, and further dilution is likely as QuantumScape charts its commercialization course.
QuantumScape is also not the lone player wrestling with the challenges of mass-producing solid-state batteries. Competitors like Blue Solutions are hot on its heels, as are giants in the electric vehicle sector like Toyota and Nio. One competitor breaching the finish line could render QuantumScape obsolete.
Additionally, QuantumScape's major investors have been net sellers of the stock over the past year, hinting at hesitancy to place long-term wagers on its potential recovery.
Should you buy, sell, or hold QuantumScape's stock?
QuantumScape's revolutionary battery technology is appealing, but its valuation seems disproportionate to its short-term growth potential. Personally, I would elect either to sell or avoid this stock, preferring to invest only when more encouraging signs emerge.
Investors might want to reassess their financing strategies when considering QuantumScape, as the company's net losses and reliance on secondary offerings could impact their portfolio's risk-return profile. Despite the potential of solid-state batteries and early industry support, the investing landscape for QuantumScape stock remains uncertain, requiring vigilant monitoring and a thorough understanding of the market dynamics.
