Is QuantumScape Stock A Buy?

Quantumscape Corp (NYSE:QS) is a San Jose, California-based solid state lithium battery company that serves the electric vehicle (EV) market. The company’s early shareholders include Volkswagen and Bill Gates, and CEO Jagdeep Singh led a successful 2020 public offering through a SPAC merger that gave it $1 billion in financing.

The rise of EVs is attracting a flood of investors, which has many traders wondering is QuantumScape stock a Buy?

Analysts are bullish on an all-electric future. In fact, Tesla CEO Elon Musk appeared on Joe Rogan’s podcast for a third time in 2021 to discuss possibilities of government fossil fuel taxes one day. He may not be far off.

Even George Soros invested $4.6 billion in the company after it disclosed a revolutionary EV battery breakthrough.

Investors from major hedge funds to the average retail investor also believes electricity is the way forward. For proof, Tesla (TSLA) became the biggest car company in the world, and it sells a fraction of the number of cars of its more established rivals. Every legacy manufacturer is racing to catch up.

That brings some interesting questions about the future of the industry and the company’s place in it.

Can QuantumScape power investors to profitability or will it drain their portfolios?

Volkswagen Partnership A Vote Of Major Confidence

QuantumScape is an EV battery manufacturer based in San Jose, California. It’s a pioneer in solid-state lithium-metal batteries that use multiple layers to create a real-world use case in EVs.

Multilayer battery cells has been the critical hurdle to overcome in mass producing commercial solid-state batteries. Several startups are working on the innovation that could revolutionize EV market adoption.

The company was founded in 2010 and partnered with German automaker Volkswagen by 2012. VW soon became the company’s leading shareholder while partnering in the battery production. It invested $300 million in the company over the past three years.

There’s good reason for VW to be bullish on these batteries.

Solid-state lithium-metal batteries are a cheaper and safer solution than current-gen lithium-ion batteries. This puts them light years ahead of traditional lead acid batteries used in gasoline engines. News that the company is making progress was enough to get investors like George Soros interested post-IPO.

But is it too pricey to buy now?

Is QuantumScape Stock A Buy?

QuantumScape was valued in the ballpark of $25 billion at the start of 2021. QS share price was volatile since its IPO, rising as high as $132.73 by the end of 2020. Soon the market settled, and shares traded around $55.00-$65.00 in the first quarter of 2021.

The company is still pre-revenue and doesn’t expect to have commercially available products on the market until at least 2024. That’s a long wait for some, but future-focused investors with a 20-year plan recognize the long-term value.

Volkswagen is a strategic investor hoping to take full advantage of any successes. And there have been plenty of successes so far. The company tested a single-layer cell in December and tested a multiple-layer cell by February. It retained over 90 percent of its capacity after 800 cycles of fully charging and discharging.

EV batteries have what’s called a “grace capacity” that only uses about two thirds of a battery’s full capacity while driving. This prolongs battery life by essentially hiding most of the capacity deterioration from the driver.

Once a battery drops below 70 percent, it has lost its optimum driving range charge. This is when consumers will notice and need to replace the battery, leaving manufacturers recycling what’s left. Solid-state batteries lengthen this timeframe and reduce the cost of refurbishing used batteries.

It’s a win-win situation, but it does have pitfalls.

QuantumScape Profitability Is A Long Way Off

A big concern when considering an investment in QuantumScape is that the company is a long way from profitability. Global manufacturing across the board has already slowed down due to the pandemic, and the semiconductor chip shortage slowed auto production too.

It’s going to take a lot more in-lab testing to prove the battery’s viability, and it’s a long road to success. Money you invest into the company now may not see returns for at least 5 years.

However, that wait could pay off if Volkswagen makes them standard in all new cars. It will put the company’s EV and hybrid efforts into the spotlight and help it compete with the behemoth that is Tesla (TSLA).

Toyota, GM Muscling In On QuantumScape Market

QuantumScape isn’t the only company working on solid-state batteries. Toyota (TM), GM (GM), Hyundai, and Ford (F) all have significant investments in solid-state battery technology companies. These batteries have faster recharge times, better energy density, more range, and other benefits.

While QuantumScape is reportedly ahead of the competition for now, it may only be able to hold that lead for so long. Both Ford and Hyundai backed Solid Power, a Colorado-based rival using 22-layer sulfide-based cells.

Even Samsung is in the race, using silver-carbon composite layer anodes. Any of these companies can take market share from QS, but the finish line could be any time over the next decade. 

Is QuantumScape Stock A Buy? The Bottom Line

QuantumScape is a California-based solid-state battery company that caught investor and media attention in the 2020s. Bill Gates and Volkswagen are among early investors before the company’s IPO in late 2020. By 2021, George Soros hopped on board after positive test results regarding its revolutionary technology.

But technology analysts warn the solid-state battery is a long, slow road to completion. Most car manufacturers don’t expect it to happen until 2025 at the earliest. It’s still early to jump on, and the stock price is getting high with no revenue to back it. An investment in QuantumScape is a pure investment on future expectations.

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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.