Will QuantumScape Stock Recover?

The full-scale adoption of electric vehicles has hit roadblocks lately. Early EV adopters bought their vehicles and there isn’t an immediate catalyst to spur consumers to trade in their gas-powered cars.

Major EV companies like Tesla and BYD have seen their stocks drop, and many traditional automakers have backed away from EVs for the time being. EV part manufacturers like solid-state battery maker QuantumScape (NYSE: QS) have struggled in-kind. QS is down around 9.6% in the past year.

QuantumScape was a popular investment during the meme-stock era because investors assumed the company’s solid-state batteries would replace the lithium-ion batteries that currently power EVs. After the company went public through a SPAC transaction in 2020, QS skyrocketed to nearly $115 per share. The hype was short-lived, however, as the company has struggled with production delays and failed to generate revenue.

QS has been on a downward trajectory ever since and it currently trades near $6 per share. It may seem unlikely that QuantumScape shares will ever reach their highs of a few years ago, but the company has strong partnerships, a healthy cash runway, and a proven product. Plus, QuantumScape just announced it’s starting to move its batteries on a larger scale.

Why Did QuantumScape Stock Drop?

The main issue isn’t just that QuantumScape doesn’t have any revenue, but also that it is losing money. Management believes that will change because it hit a significant milestone in the first quarter of 2024.

It shipped the initial prototypes of its Alpha-2 batteries. The Alpha-2 is a new version of the company’s solid-state battery that’s purported to fast charge from 10% to 80% in 15 minutes. The batteries also deliver more miles and perform better in low-temperature settings than do lithium-ion solutions.

It’s the first of four main goals the company hopes to accomplish this year. The others are:

  • to ramp up the Raptor fast separator production process,
  • increase production of the QSE-5 (QuantumScape’s first commercial product), and
  • develop the Cobra process that will facilitate higher QSE-5 production volumes.

In Q1, QuantumScape spent $14.1 million in capital expenditures and took a $131.9 million net loss. The company closed the quarter with $1.01B in cash and cash equivalents on hand, and QuantumScape expects its cash runway will keep the company moving until the latter part of 2026.

QuantumScape reaffirmed its guidance for the full year of 2024 and expects capital expenditures between $70 million and $120 million with adjusted EBITDA losses between $250 million and $300 million.

The earnings call didn’t please investors who hoped the company would be further along in production, triggering QS share price to fall by nearly 7%.

Will QuantumScape Stock Recover?

Optimism is low among analysts that QuantumScape stock will recover with a consensus price target of $6.13, just 3.7% higher than present levels.

3 sell ratings exist on the stock, and the lowest forecast has QS dropping around 32% to $4 in the next 12 months.

Out of 10 analysts who have rated the stock, only one recommended it as a Buy. The highest forecast is quite bullish though, because the analyst predicts QS will jump over 69% to $10 in the next year.

One tailwind that shareholders can cling onto is the fact that the company still has the backing of long-time ally Volkswagen. The auto giant made a $100 million investment in QuantumScape in 2018 and followed with a $200 million investment in 2020.

In January, Volkswagen’s PowerCo battery laboratories performed a series of endurance tests on QuantumScape’s batteries, which they passed with flying colors. The batteries completed over 1,000 charging cycles and still had more than 95% capacity. It means the average electric car could drive over 310,000 miles without significant battery deterioration.

“These are very encouraging results that impressively underpin the potential of the solid-state cell,” said Frank Blome, CEO of PowerCo. “The final result of this development could be a battery cell that enables long ranges, can be charged super-quickly and practically does not age. We are convinced of the solid-state cell and are continuing to work at full speed with our partner QuantumScape towards series production.”

Is Quantumscape Stock Undervalued?

The Volkswagen results back one-third of the central thesis for QuantumScape bulls: that solid-state batteries will power future EVs.

The second part of the thesis is that QuantumScape’s early position in the space will make the company an integral player in the EV landscape.

That is not a foregone conclusion, because auto giant Toyota has long hinted it has a solid-state solution of its own. EV leaders BYD and NIO, among others, are also working on solid-state batteries, and all those companies have larger footprints than QuantumScape.

The last assumption for QuantumScape investors was EV adoption would accelerate until electric vehicles became the dominant form of automobile.

Early EV adopters have bought in, but electric vehicles still have too many limitations for most consumers. Namely, they cost too much, charge too slowly, and don’t drive far enough yet.

Is QuantumScape a Buy or Sell?

QuantumScape has been the subject of intense speculation since the company came on the scene a few years ago, but most investors have bowed out as the company has struggled to get its products to market.

The lack of revenue and deepening losses are concerning, but QuantumScape should have enough cash to see it through to when its batteries reach vehicles.

A stronger concern is whether the company can leverage its first-mover advantage to grab market share before competitors move in. There are also increasing questions about the future of the EV market.

If electric vehicle adoption picks back up and QuantumScape stays on track, the company could be perfectly positioned to be a significant player. Unfortunately, that’s a big if.

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