QuantumScape (QS -1.10%), a maker of solid-state batteries for electric vehicles (EVs), initially attracted a stampede of bulls when it went public by merging with a special purpose acquisition company (SPAC) in November 2020. The combined company's stock opened at $24.80 and skyrocketed to its record high of $131.67 less than a month later.
But today, QuantumScape's stock trades at about $5. The bulls retreated as the company struggled to commercialize its products, new competitors entered the market, and rising interest rates highlighted its steep losses and compressed its valuations. Should investors buy, sell, or hold this volatile stock in this challenging market for speculative EV plays?
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The reasons to buy or hold QuantumScape
The bulls still like QuantumScape because its technology is promising, it's backed by Volkswagen, and it's finally rolling out its first samples this year.
QuantumScape's solid-state batteries are powered by solid electrolytes instead of the volatile liquid electrolytes used in traditional lithium-ion batteries. That's why they have a higher energy capacity, faster charging capabilities, shorter manufacturing times, and a lower risk of fire than lithium-ion batteries.
Solid-state batteries are already used in smaller gadgets like pacemakers and wearable devices, but they haven't been mass produced for larger devices or EVs because they're more expensive.
QuantumScape is trying to close that gap and disrupt the lithium-ion market by scaling up its production of solid-state batteries. That focus attracted a big investment from Volkswagen more than a decade ago.
Most lithium-ion batteries for EVs have a range of about 300 miles and require 30 minutes to charge, but QuantumScape's newest solid-state batteries have a range of 400 to 500 miles with a charge time of less than 15 minutes. It's aiming to reach a range of 600 miles and a charge time of under 30 minutes with its next generation of batteries.
Volkswagen's latest tests found that QuantumScape's batteries could power an EV for more than 310,000 miles "without any noticeable loss of range." By comparison, the average EV loses about 10% of its range after the first 200,000 miles.
QuantumScape is finally rolling out its first low-volume samples this year, and it says it's on track to start shipping its first high-volume samples in 2025. That rollout might give it an early mover's advantage in the solid-state battery market, which Markets and Markets estimates could grow at a compound annual growth rate (CAGR) of 41.5% from 2023 to 2030.
The reasons to sell QuantumScape
The bears will point out that QuantumScape hasn't proven its business model is sustainable, it faces intense competition, and it still looks ridiculously overvalued relative to its long-term growth.
Analysts don't expect QuantumScape to generate any meaningful revenue this year, but they expect it to rack up a net loss of $496 million. It ended the first quarter of 2024 with only $192 million in cash and equivalents, with $817 million in marketable securities. During its pre-merger presentation, QuantumScape claimed it could generate $14 million in revenue in 2024 as it commercialized its first batteries, followed by $39 million in revenue in 2025.
But in 2025, analysts expect QuantumScape to only generate $4 million in revenue while incurring an even wider net loss of $497 million. Its low debt-to-equity ratio of 0.2 might give it some room to raise fresh cash, but it's already diluted its own share count by 22% over the past three years with new stock offerings and its own stock-based compensation.
That outlook seems grim for a company that has an enterprise value of $2.17 billion. That's 37 times the $58 million in revenue analysts expect it to generate in 2026 if it finally commercializes its products.
That lofty valuation might be justified if QuantumScape had a clear path toward dominating its nascent market, but it doesn't. Other major automakers like Toyota and Nio have also been developing their own solid-state batteries, while Volkswagen even reportedly held talks with Blue Solutions, a French solid-state battery maker, to reduce its long-term dependence on QuantumScape. So unless QuantumScape commercializes its products and proves that its business model is actually sustainable, its stock could drop a lot further before it's considered a bargain.
Which argument makes more sense?
QuantumScape, like many other SPAC-backed, EV-related companies, repeatedly disappointed its investors by overpromising and underdelivering on its targets. It's also arguably acting more like a start-up than a publicly traded company.
Therefore, it's easy to see why QuantumScape's stock plummeted more than 95% from its all-time high. It might be tempting to nibble on this stock as a contrarian play, but I'd personally avoid it until it actually ships its first commercial batteries.
