QuantumScape: Buy, Sell, or Hold?

Electric vehicles (EVs) are seen as a potential revolution in how we travel, but there are still obstacles that must be overcome for them to become widely accepted. A popular critique is that these vehicles often take a long time to charge, and another is that their driving range, or how far they can go on a single charge, is limited.

This is where QuantumScape (QS) enters the picture. The company is aiming to enhance lithium-ion battery technology to exceed its existing boundaries and has substantial support from Volkswagen to reach this aim. Preliminary results from extensive endurance tests indicate encouraging outcomes, and recent developments in battery prototypes have gained attention for QuantumScape once again.

With its stock currently trading 96% lower than its four-year high and nearing historical lows, many are asking: Is it time to buy or sell QuantumScape? Let’s explore.

Reasons to Consider Buying or Holding

QuantumScape's innovative solid-state lithium-metal batteries offer great potential for enhancing energy density, charging times, and safety compared to traditional batteries. Volkswagen plays a significant role in this strategy, having invested more than $300 million and forming a 50-50 joint venture with QuantumScape to improve battery technology and ramp up production.

Earlier this year, Volkswagen's battery division, PowerCo, carried out endurance tests on QuantumScape's solid-state batteries. These batteries managed to undergo over 1,000 charging cycles with little wear, indicating that an EV powered by this technology could travel more than 500,000 kilometers (approximately 310,000 miles) before experiencing a noticeable drop in range.

Recently, QuantumScape's stock received a boost when the company reported it had produced and shipped B-sample cells, which is a significant goal for 2024. These cells are being sent to automotive companies for detailed testing as part of a strict validation process involving A, B, and C prototype cells before moving to full commercial production of the final product.

In the end, QuantumScape's goal is to enable electric vehicles to travel longer distances, recharge faster, and operate more safely.

Reasons to Consider Selling

On the flip side, QuantumScape is up against tough competition. For instance, Toyota has introduced first-generation solid-state batteries that can achieve a range of 745 miles, and its second-generation batteries are anticipated to reach up to 932 miles, while also being able to charge to 80% capacity in about 10 minutes. Toyota plans to implement its solid-state technology in hybrid vehicles as early as next year. At the same time, Nio has already launched its semi-solid-state batteries with a range close to 620 miles in the market.

Moreover, QuantumScape is currently not generating any revenue and is experiencing significant losses. In the first three quarters of 2024, the company reported a net loss of $364 million. Therefore, obtaining funding will be essential for QuantumScape's long-term viability.

Earlier this year, QuantumScape entered into an agreement to allow PowerCo to mass-produce battery cells utilizing its technology. This partnership enables PowerCo to manufacture up to 40 gigawatt-hours (GWh) annually, with the option to increase this to 80 GWh. Thanks to a prepayment of royalties amounting to $130 million from PowerCo, QuantumScape's cash runway has been extended to 2028.

This collaboration also allows QuantumScape to take a more capital-efficient path toward scaling production than its previous agreement.

However, QuantumScape's large-scale battery production is still in development. Analysts predict that the company will not report positive net income until 2029.

Final Thoughts

QuantumScape is in pursuit of groundbreaking technology that has the potential to transform electric vehicles and enhance their attractiveness for consumers. Nevertheless, it's important to note that the company is still in the preliminary stages of developing its battery technology, and it may take years before it generates positive cash flow. For this reason, it might be wise to consider a sell rating for the stock at this time.

QuantumScape, Electric Vehicles, Batteries