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Is QuantumScape a Good Electric Vehicle Stock?

By Matthew Frankel, CFP® and Jason Hall - May 15, 2021 at 8:47AM

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This pre-revenue battery maker could have lots of potential.

QuantumScape (QS -3.57%) is developing the latest electric vehicle battery technology, but it is still in the pre-revenue stage at this point. In this Fool Live video clip, recorded on April 28, contributor Jason Hall and Chief Growth Officer Anand Chokkavelu discuss why this Bill Gates-backed company could be worth a look. 

Anand Chokkavelu: I'm going to start with QuantumScape. That'll be Jason, that's ticker symbol QS, market cap of just $14 billion for a pre-revenue company. It's the VW battery Remora or alternatively, it's frequently called the one backed early by Bill Gates. 

Jason Hall: [laughs] There's some other people involved in QuantumScape, so you can start drawing the Tesla ties even closer. The idea here is it's all about battery, so you think about Tesla investing and improving battery chemistry, building out the scale with their Gigafactories to build batteries. JB Straubel, the guy that was really involved in operations at Tesla, was a co-founder, he was their fifth employee. I can't remember if he had a battery development for the S or the Model 3, but he was really key cog at Tesla's battery program for like 15 years, was an early investor in QuantumScape. The ties continue to go. Where does QuantumScape fit in this? A little bit the same idea as SolarEdge, but in maybe the most critical component that's going to determine the future of EVs and all the applications and that's in batteries.

QuantumScape is working to develop solid state battery technology. You think about the way batteries work nowadays are chemical batteries, liquid batteries that we think about the lithium-ion battery. These are gel batteries versus the solid-state batteries which they don't have the liquids and the gel, so it could substantially reduce the weight enormously. It can change the way you can configure batteries. One of the things that's a big potential with solid state technology is that actually, the battery becomes part of the frame of the vehicle, so you don't have a frame that weighs a lot of pounds, and then you have this massive tray of batteries underneath it that you're just adding additional weight. The ability with solid-state to be able to build that into the frame of the vehicle is enormous. Charging speeds are much, much faster.

There's only one little catch. Nobody has proven that they can build them at scale affordably. That's the little problem that QuantumScape is working on. You're paying $14 billion to buy a company that has no sales and is multiple years away from sales. At this point, they've demonstrated that the technology is there, it exists, you can build solid-state batteries. They do all of the things they say they can do. Recharge very fast because they weigh much less your ability to get more batteries and more storage increase range, they're all there. What the company has to demonstrate is the ability to scale that up at commercial manufacturing levels and then it could be enormous or it could be absolutely nothing.

Big investors. Again, you've got somebody like JB Straubel who has a track record of understanding the industry, understanding the importance of batteries. Bill Gates, start checking off the list of really smart people that are thinking about the future of how we power and transport around the world and those people are involved. VW is a major investor. VW is going to come up here in just a second. It's on this list too, I'll go ahead and tease that.

Chokkavelu: Maybe.

Hall: Maybe, it could be. VW is, I wouldn't say they're certainly not all-in on QuantumScape, but their program is betting relatively heavily on being able to meet all of their EV ambitions, which are very aggressive, maybe the most ambitious of all of the large automakers. Advanced battery technology being part of them being able to meet all of their ambitions. That's QuantumScape.

Anand Chokkavelu, CFA has no position in any of the stocks mentioned. Jason Hall owns shares of SolarEdge Technologies. Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool recommends SolarEdge Technologies. The Motley Fool has a disclosure policy.

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Stocks Mentioned

QuantumScape Corporation Stock Quote
QuantumScape Corporation
$12.71 (-3.57%) $0.47
Tesla, Inc. Stock Quote
Tesla, Inc.
$919.69 (-0.89%) $-8.27
Volkswagen Aktiengesellschaft Stock Quote
Volkswagen Aktiengesellschaft
$20.39 (1.29%) $0.26
SolarEdge Technologies, Inc. Stock Quote
SolarEdge Technologies, Inc.
$311.27 (-3.98%) $-12.91

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