Considering QuantumScape's current price under $7.50, is it wise to invest?
Considering QuantumScape's current price under $7.50, is it wise to invest?
Electric vehicles (EVs) are pushing to alter the transport landscape, but like any innovative tech, EV batteries have challenges to conquer before widespread adoption. Criticisms often focus on EVs' lengthy charging times and shorter driving range versus gas-cars.
Enter QuantumScape (QS). The company's objective is to engineer batteries that overcome lithium-ion batteries' limitations and make EVs more alluring to consumers. Earlier this year, QS earned attention with remarkable endurance test results of its battery. It also secured funds to prolong its lifespan and recently surpassed a significant milestone with the delivery of its B-sample cells for further examination.
QS is progressing, yet its stock is 96% off its peak price from four years ago and nearing an all-time low. Despite the attractive price, there are considerations if considering purchasing the stock now.
Solving substantial EV challenges
QS targets battery technology transformation and overcomes EV adoption barriers. Its advanced solid-state lithium-metal batteries pursue advancements in several crucial areas: higher energy density, quicker charging times, and enhanced safety features over conventional battery systems.
QS established a strategic collaboration with Volkswagen. Earlier this year, Volkswagen's battery division, PowerCo, tested QS's solid-state batteries and reported impressive results, accomplishing 1,000 charging cycles, with the battery cells exhibiting minimal wear signs. Consequently, an electric vehicle utilizing their technology could conceivably traverse over 500,000 kilometers without noticing a significant decrease in range.
Rigorous battery testing process
Last month, QS's stock climbed following its announcement of producing and distributing low volumes of its B-sample cells. The company identified this as its crucial target for 2024, and it started shipping these cells to its automotive clients for extensive testing.
These tests by automakers will take months to complete, part of a three-step process, involving A, B, and C prototype cells undergoing internal and client testing before the commercial production of its product, QSE-5. Ultimately, the company aims to corroborate that its technology enables EVs to drive farther, charge quicker, and operate more safely than current market offerings.
Watch its cash burn
QS's battery technology is advancing, but the company remains pre-revenue and continues to consume cash in the interim. Through the first nine months of this year, QS recorded an operating loss of $397 million, an increase from its $354 million operating loss during the same period last year.
To address cash flow, QS agreed to grant PowerCo the license to manufacture battery cells based on QS's technology. Under this agreement, PowerCo can produce up to 40 gigawatt-hours (GWh) per year, with the option to double production to 80 GWh. This would be enough to power approximately 1 million vehicles annually.
Is QS a buy today?
QS's partnership with PowerCo expands QS's cash lifespan by 18 months to 2028, thanks to a $130 million prepayment of royalties from PowerCo. It also enables the company to adopt a capital-light strategy and reach its gigawatt-hour scale faster under its previous agreement.
However, QS continues to burn cash today, and several developments need to occur before its batteries can be manufactured at scale and commercialized. Not only that, but according to the four analysts following the company, QS will not generate positive net income until 2029. In the meantime, its stock price will be influenced by its progress with its B-samples and further prototype development.
For these reasons, investing in the up-and-coming battery technology company is highly speculative and risky, and most investors are better off observing this one from the sidelines for now.
The promising results of QuantumScape's (QS) battery technology in addressing EV challenges, such as improving energy density, reducing charging times, and enhancing safety features, have attracted significant investment. Despite the attractive price of QS's stock, which is 96% off its peak price from four years ago, the company's pre-revenue status and ongoing cash burn present financial considerations for potential investors.