QuantumScape's (NYSE: QS) solid-state battery technology could relieve a slew of problems or hindrances for electric vehicles (EVs), among other industries. Solid-state EV batteries would lower costs, increase range, and improve safety -- three critical components of whether consumers decide to buy an EV.
But the shine has worn off QuantumScape, with the stock 72% lower over the past three years, and even more if you judge from its all-time high. Without meaningful sales until at least next year, some investors have walked away, but is it really time to give up on QuantumScape?
Not so fast
Let's briefly cover some reasons investors may have walked away over the past couple of years.
First, the stock keeps moving lower. Investors may have bought in at a steep discount from the company's initial hype and thought it couldn't go lower, but that's a mistake. Despite being a pre-revenue company, QuantumScape's market capitalization is still slightly over $3 billion -- it can still shed plenty of value. Investors need a long-term mindset owning QuantumScape.
Second, some investors are increasingly concerned about a recession and the negative impacts it would have on the EV industry. While that's true for the EV industry in general, a recession would harm QuantumScape much less, as it doesn't currently rely on sales revenue and wouldn't worry about a cyclical slump.
Third, without meaningful sales, investors are left to watch cash burn as the company ramps up development, testing, and production. While it's concerning to see zero revenue and only capital expenditures, the company's cash pile can fund operations into 2028. That leaves plenty of time for the company to reassess and attract new funds if needed.
Let's switch gears and look at some of the recent progress and why it's not time to give up on QuantumScape.
QS has delivered so far
For investors, it can often be frustrating to deal with management-speak that often overhypes and underdelivers. It can also be frustrating to deal with cost overruns, failed tests, or lengthy delays. But for the most part, QuantumScape has done exactly what it pledged to do, which is prove its technology, record successful and impressive testing results, and line up partnerships, and it's done this within a reasonable timeline.
Diving in a little further, investors can break two major milestones down to what the company refers to as Raptor and Cobra, which are simply fancy names for two stages of manufacturing. One of management's key goals in 2024 was for its Raptor process to demonstrate it could produce the best-performing separators it has made at higher volume, and so far so good. Cobra will take it a step further in 2025.
QuantumScape has checked off multiple 2024 milestones, such as shipping unit cells with higher-loading cathodes, improved cell packaging efficiency, and introduced its first commercial product, the QSE-5, all while improving production quality and consistency -- two critical factors to reaching commercialization.
There's a path forward
If you follow QuantumScape, you no doubt have heard about its massive agreement with Volkswagen Group's battery company, PowerCo. This agreement does a couple of positive things for QuantumScape. It will bring in royalty payments upon certain technical progress, and the licensing will enable commercial-level production in a capital-light strategy.
In fact, the nonexclusive license will enable PowerCo to manufacture up to 40 gigawatt-hours (GWh) annually at first, which is enough for roughly half a million vehicles, with an option to double that output. What this really means for investors is that QuantumScape has proven its technology and production process enough that automotive manufacturers are taking it seriously.
For investors, the main takeaway going forward is not to give up on QuantumScape, but to have patience. This was always going to be a long-term story, and the company is just now beginning to hit milestones, partnerships, and production that could become catalysts. It's important to remember that the company has largely delivered on its goals, and continues to make meaningful progress, but its stock isn't for the risk averse or investors on a short timeline.
Should you invest $1,000 in QuantumScape right now?
Before you buy stock in QuantumScape, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and QuantumScape wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $769,685!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of August 26, 2024
Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Volkswagen Ag. The Motley Fool has a disclosure policy.
