A shift from the internal combustion engine to electric vehicles is undisputed. Governments, legacy car companies, and new EV makers are spending billions of dollars to bring about this change. Batteries that power electric vehicles have a major role in the transition to EVs.
QuantumScape (QS -0.67%) is working on the next-generation batteries that could step up the ongoing shift to electric vehicles.
Why QuantumScape stock fell in 2021
QuantumScape's product is still in the development stage. As an early-stage company, QuantumScape's stock price is volatile. The stock's fall this year had no strong reason, just like its spectacular rise last year was mostly without reason. QuantumScape, which got listed on Nov. 27, 2020, rose 283% by the end of 2020.
The stock's fall in the beginning of 2021 was largely a correction of that rise, and the stock is now trading close to its price at the time of IPO.
QuantumScape's progress so far is impressive
QuantumScape is working on the so-called solid-state battery technology that, if successful, can make batteries more energy-dense. That can significantly improve an EV's range while reducing costs. Notably, despite years of research, no company has yet been successful in commercializing solid-state batteries.
QuantumScape has set developmental milestones for the commercial launch of batteries in 2024. The company recently announced that it had met all its internal milestones for 2021. This includes testing of a 10-layer battery cell under predefined test conditions. Further, QuantumScape has secured a facility for its battery manufacturing in San Jose.
While QuantumScape is preparing its manufacturing facility, significant work remains on the technology development front. To begin with, QuantumScape has tested 10-layer cells, but batteries for use in EVs may require several dozen such layers, perhaps going above 100 layers. The company still needs to develop and test these. At the same time, the company needs to improve the separator and cathode material used in the cells.
QuantumScape hopes to produce sample cells for use in test cars in 2023. There are still several unknowns before QuantumScape succeeds.
Competition is heating up
Though QuantumScape's progress looks impressive, it is not alone in its efforts. Several other companies are also trying to commercialize solid-state batteries. Toyota has more than 1,000 patents relating to solid-state batteries. The company hopes to launch its first car using solid-state batteries by 2025.
Solid Power (SLDP -0.72%) is another company working on solid-state batteries. The company went public on Dec. 9 and has the backing of Ford and BMW. Other companies working on solid-state batteries include Hyundai and Samsung.
QuantumScape is backed by Volkswagen (VWAGY 0.31%), which has invested $300 million in the company so far. The two companies have formed a joint venture for a commercial production capacity of 21 gigawatt-hours per year. Volkswagen also continues to validate QuantumScape's progress in cell development. Therefore, QuantumScape will have a ready buyer once its technology is developed.
Additionally, QuantumScape recently entered an agreement with a top-10 automaker by revenue for 10 megawatt-hours of batteries.
Is QuantumScape a buy?
What does all the above mean for QuantumScape stock? With the backing of two top automakers, QuantumScape's efforts in solid-state batteries look credible. If QuantumScape commercializes solid-state batteries before its competition, its stock will see exceptional gains.
Even if QuantumScape isn't the first company to commercialize solid-state batteries, it could be well-placed to grow due to the strong expected demand for these cells. As the company progresses further on its plans, its stock price should recover. The stock is trading 72% below its high price this year, offering an attractive entry point for long-term investors. Notably, QuantumScape stock entails significant risks and is suitable only for investors with a high appetite for risk.