QuantumScape(NYSE: QS) has disappointed a lot of investors since its public debut. The developer of solid-state batteries went public by merging with a special purpose acquisition company (SPAC) in November 2020, and its stock started trading at $24.80 and skyrocketed to a record high of $131.67 less than a month later.
But today, QuantumScape's stock trades at about $6. It sank for three obvious reasons: It wasn't generating any revenue because it hadn't commercialized any of its products, it was racking up steep losses, and it kept struggling with delays as bigger competitors crept into its backyard. So should investors take the contrarian view and buy this beaten-down stock?
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Why QuantumScape missed its original targets
Solid-state batteries generate electricity with solid electrolytes, which are denser, more stable, store more energy, and charge more quickly than the liquid electrolytes used in lithium-ion batteries. They're already used in smaller devices like wearables and pacemakers, but they haven't been mass-produced for electric vehicles (EVs) because they're more expensive than their lithium-ion counterparts.
QuantumScape's biggest backer is Volkswagen(OTC: VWAP.Y), which started developing solid-state batteries with the company 12 years ago. In 2022, Volkswagen established a new group, PowerCo, to test and industrialize QuantumScape's batteries. Volkswagen's support drove a lot of investors to QuantumScape's SPAC-backed debut, even though the company hadn't commercialized any of its batteries yet.
QuantumScape fanned those flames in its pre-merger presentation by claiming it could commercialize its first batteries in 2024, then grow its revenue at a whopping compound annual growth rate (CAGR) of 363% from $14 million in 2024 to $6.44 billion by 2028. That's why QuantumScape's stock initially rose more than fivefold after its public debut.
But as of this writing, QuantumScape still hasn't commercialized its batteries yet. It's conducted plenty of tests with PowerCo and started to ship its first samples, but analysts don't expect to generate any revenue from those shipments this year.
QuantumScape missed its original goals because the supply chain constraints made it hard to acquire new manufacturing equipment. It also struggled to hire enough engineers to stick with its product development roadmap. As it grappled with those challenges, big automakers like Toyota and Nio started to develop their own solid-state batteries. Volkswagen even held talks with other solid-state battery makers as QuantumScape struggled.
The long-term outlook for QuantumScape
QuantumScape faces a lot of near-term challenges, but it expects to finally start shipping its first commercial batteries in 2025 and ramp up its production in 2026. Based on those expectations, analysts believe the company could generate $5.4 million in revenue in 2025 and $12.3 million in 2026. But they also expect it to rack up a net loss of $465 million in 2025 and a steeper net loss of $491.8 million in 2026.
QuantumScape is burning a lot of cash, but it recently secured a new licensing deal with PowerCo, which extends its cash runway into 2028. That lifeline implies that Volkswagen still expects QuantumScape to ramp up its battery production.
But with an enterprise value of $2.3 billion, QuantumScape is still richly valued at 193 times its 2026 sales. That nosebleed valuation will be impossible to justify unless it significantly expands its business over the next few years. It's also increased its number of shares by 46% since its public debut, as it subsidized its salaries with stock bonuses and raised more cash through secondary offerings. Its insiders sold 52 times as many shares as they bought over the past 12 months.
Is it the right time to buy QuantumScape?
In a best-case scenario, Markets and Markets expects the global solid-state battery market to expand at a CAGR of 41.5% from 2023 to 2030. If QuantumScape actually generates $12 million in revenue in 2026 and grows at a CAGR of 40% over the following four years, it could potentially generate $46 million in revenue by 2030.
Yet QuantumScape already trades at 50 times that estimate -- so it still looks incredibly expensive relative to its long-term growth potential. Therefore, I wouldn't touch its stock until it actually commercializes its batteries and scales up its business.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Volkswagen. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.
