QuantumScape (NYSE:QS) stock is 73% off its high price of more than $131 in December last year. The stock is even trading at a level lower than its opening price on listing. As a company in an emerging technology, the volatility in QuantumScape stock isn't too striking. The key question is, after falling so much, is the stock a buy now? And can it generate multibagger returns over time? Let's take a closer look at what may and may not work for QuantumScape.

What may work

First and foremost, QuantumScape's biggest attraction is its promising technology. The company claims to have achieved major breakthroughs in next-generation battery technology. Right now, electric vehicles use lithium-ion batteries. Though they're a major improvement over their predecessor -- nickel-cadmium batteries -- lithium-ion batteries have their own limitations.

To begin with, their energy density -- the amount of energy produced per kilogram or per liter volume -- is low. This makes them bulkier. As increasing weight beyond a level adversely affects a vehicle's performance, electric vehicles right now have limited range and need frequent recharging.

Woman charging electric car

Image source: Getty Images.

QuantumScape uses solid-state battery technology and has developed lithium-metal batteries that have higher energy density. Additionally, they can be charged faster and could cost less than lithium-ion batteries. If successful, this technology could be a game-changer in the EV space.

The second thing that favors QuantumScape is the backing of a list of notable people. Apart from an experienced management team, the company has the likes of Bill Gates and Volkswagen (OTC:VWAGY) as its investors. It also boasts several notable board members, including some from the auto industry. The company has spent more than a decade in researching this battery technology and looks committed to its purpose.

Finally, QuantumScape will have a near-confirmed buyer in Volkswagen should it start commercial production of batteries. Volkswagen plans to build more than 25 million electric vehicles by 2030. Volkswagen has committed funding of $300 million to QuantumScape. Furthermore, it has formed a joint venture with QuantumScape for commercial production of batteries. Notably, this partnership does not require QuantumScape to supply exclusively to Volkswagen, and the company can potentially sell to other automakers.

What may not work

There are several factors that may affect QuantumScape's plans. First and foremost, it does not have a commercially viable product right now. The company's battery technology so far has only been sample tested in labs. There remain many unknowns between now and when the company thinks it can have a product ready for use at a commercial scale.

For example, QuantumScape uses a proprietary separator in its lithium-metal batteries. It expects engineering challenges as it increases the dimensions and volumes of this solid-state separator. Likewise, to achieve the required energy density, single-layer cells need to be stacked in multi-layer format. The company hasn't yet built multi-layer cells of dimensions required for electric vehicles and does not yet have the manufacturing processes to develop such cells in high volumes.

Further, the company hasn't yet finalized the composition of cathode material to be used in its solid-state batteries and whether it meets electric vehicle requirements or not. In short, QuantumScape's solid-state technology could fail to produce the desired results, or it may end up costing higher than the company is hoping.  

The second factor that may work against QuantumScape is fierce competition. QuantumScape is not the only company trying to commercialize solid-state technology. Toyota (NYSE:TM), for example, plans to produce vehicles running on solid-state batteries by 2025. It hopes to launch a prototype as early as this year itself. Along with Panasonic partnership, Toyota is believed to be backed by the Japanese government. Toyota already has more than 1,000 patents related to solid-state battery technology.

Blocks spelling RISK? with hand turning another block from NO to YES

Image source: Getty Images.

Top suppliers of lithium-ion batteries are also researching solid-state technology. Finally, there are several development-stage companies working on the next-generation battery technology, like EnergyX and Amprius.

QuantumScape has more than 200 patents and patent applications relating to its battery technology. That does seem to be higher than most competitors apart from Toyota. With the backing of Volkswagen, QuantumScape thus looks well-positioned to take competition head-on.

Another potential issue is that of patent infringements. Though better-protected in the U.S., patent rights could be difficult and expensive to protect in several other countries. On the other hand, QuantumScape's competitors may hold some patents that may interfere in the production process, resulting in lawsuits on it. That, again, could make it difficult for QuantumScape to carry on its operations.  

The final thing that works against QuantumScape is the long time before it could become profitable. The company expects to generate positive EBITDA in 2027. Many things can go against it in the meantime, the biggest being a competitor bringing the technology to market before QuantumScape.

Conclusion

In addition to the above-noted positives, it is also worth noting that QuantumScape doesn't expect to need additional funding until it starts commercial production. That means less potential dilution for existing shareholders. Based on its forecasted EBITDA of $1.6 billion in 2028, the stock's valuation seems reasonable after its more than 70% fall.

Can QuantumScape fail to achieve what it is hoping? Of course, it can. But the company seems to be making an honest effort in a promising segment. And it seems to have a lead and an edge. Still, competition is fierce and there remain many unknowns between lab testing to commercial production and real-world operation. But I think there are more pluses than minuses here. For that reason, QuantumScape has a fair chance of becoming a millionaire-maker stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.