QuantumScape (NYSE:QS) is an innovative EV battery company that specializes in solid-state batteries. Over the last several years, it has developed impressive battery technology that offers much higher energy density and much faster charging times compared to traditional lithium-ion batteries.
SSBs of the sort made by QuantumScape also offer significant advantages in terms of both cost and safety, making them a seeming no-brainer for inclusion in the next generation of electric vehicles but do these characteristics make QuantumScape a buy today, or is the company still too early in its lifecycle to be investable?
How Far Has QuantumScape Gotten?
One of the first things about QuantumScape that will jump out to investors is the fact that the company hasn’t started generating revenues, let alone earnings. As such, it’s extremely important to answer how far QuantumScape has gotten in pushing its battery technology to market and how long it could be before serious sales begin to materialize.
Small amounts of revenue are expected to begin rolling in next year and snowball at a rapid rate until at least 2028 as QuantumScape scales up. By that year, the company could be generating nearly half a billion dollars in annual revenues. While these analysts’ expectations likely represent a best-case scenario that QuantumScape may very well fall short of, it does seem that the company is getting fairly close to generating real-world sales.
One area where QuantumScape has made strides is in building a partnership with Volkswagen, which could be a huge customer for its batteries. QuantumScape is also shipping early iterations of its batteries to a prospective launch customer for validation and testing, demonstrating that the company is making serious progress toward commercializing the battery technology it has developed.
QS is also working to scale up its production capacity. One of the projects management hopes to complete by the middle of this year is to bring its new separator process, dubbed Cobra, online. Between this project and investment in better battery assembly processes, QuantumScape is gradually positioning itself to be able to build batteries on a large scale.
Beyond these, QuantumScape has done an impressively good job of managing its finances as it ramps up. As of the end of Q1, it had about $860 million in liquidity, enough to last it into 2028. By that time, assuming everything goes well, the business may well be generating significant revenue. Revenues generated between now and then should also allow balance sheet reserves to stretch further out.
Taking all of this into account, QuantumScape presents an interesting opportunity for risk-seekers. On the one hand, the company has done an excellent job of developing its technology, putting systems in place for manufacturing that technology at scale and engaging with potentially valuable customers. On the other hand, future revenues are still fairly uncertain, and there’s no clear picture of when QuantumScape will be able to achieve net profitability.
QuantumScape’s Valuation Is Hard To Nail Down
With neither earnings nor revenues to base a valuation on, QuantumScape’s $2.2 billion valuation is quite speculative. The price-to-book ratio of 2.0 isn’t outrageous, but the company will have to keep supporting itself on its current cash reserves until it can start actively selling its batteries at scale.
QS also trades at more than four times the rosy 2028 revenue expectations mentioned above, opening up the strong possibility that the shares could be overvalued relative to the company’s future performance.
This hasn’t prevented analysts from projecting significant upside for QS shares, though. The average target price for the stock currently stands at $4.92, about 24.6% higher than the last price of $3.95. The problem, however, is that any delay in QuantumScape’s path to consistent sales could cause the shares to substantially underperform these expectations.
It’s also interesting to note that institutional investors don’t seem to be following the more bullish outlook suggested by analysts covering QS.
Over the last six months, institutions have sold about $1.4 billion worth of QuantumScape shares while buying only $856 million. The amount of selling in the last six months is more than double the company’s current market cap. As such, it doesn’t seem that Wall Street is particularly eager to hold QS in the current market environment.
How Vulnerable Is QS to Today’s Economic Challenges?
Speaking of delays, QuantumScape is vulnerable to the extreme uncertainty roiling the market currently. With the economy having contracted 0.3% in Q1 and consumer sentiment falling quickly, spending on vehicles has the potential to slide significantly in 2025. This, in turn, may cause automakers to spend less on developing new vehicle lines and impact demand for QuantumScape’s batteries.
In addition, trade barriers may pose problems for QuantumScape if tariffs and reciprocal tariffs begin disrupting the flow of goods between the US and the rest of the world. So far, the United States has been a bit slower to adopt EVs than markets in Europe and Asia.
As such, trade disruptions between these markets and the United States could prove to be problematic for companies like QuantumScape that are shipping EV parts internationally.
Is Now the Time to Buy QuantumScape?
There’s little doubt that QuantumScape has developed impressive battery technology and created partnerships that will be extremely helpful in commercializing that technology. The problem today, though, is that QuantumScape is still a pre-revenue company trading at high multiples to its expected future revenues at a time of deep economic uncertainty. As such, the stock looks quite risky at the moment.
QuantumScape may be a good company to watch over the next couple of years, as buying opportunities could present themselves once a clearer picture of the company’s market position and potential revenue emerges. Right now, though, QS shares appear to be far too speculative and far too vulnerable to losses to be a good buy for many investors. Given the promising advantages of the company’s technology, though, it also seems unwise to write QS off as an investment altogether.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.