A rapid growth in the adoption of electric vehicles (EVs) has attracted more interest, and investment, in the sector. Two key factors that could further spur EV adoption are increased range and lower costs of EVs. Auto and EV companies are investing a lot of time, energy, and money to achieve these twin objectives.
Developer of next-generation battery technology QuantumScape (QS 10.12%) believes that its solid-state batteries could help increase the range of electric vehicles while reducing battery costs. Let's review how far the company has progressed and what to expect from it in the coming years.
QuantumScape's progress on its plans
Right now, EV makers use lithium-ion batteries in the vehicles. These batteries are far better than other types of batteries, such as nickel-cadmium batteries, that were used earlier. The lithium-ion batteries have been continuously improved over the years. However, QuantumScape, and other battery companies, believe that lithium-ion batteries have reached to a practical limit, beyond which they cannot be further improved. Next- generation solid-state lithium-metal batteries are widely believed to be the best way to achieve a greater energy density.
Solid-state batteries, though promising, have been under research for years. No company has so far been able to successfully commercialize the technology. There are several design and engineering challenges that companies need to overcome to make these batteries work in automotive applications.
A couple of years back, QuantumScape, which has been researching the technology for years, felt that it has achieved some breakthroughs that could finally lead to the commercial success of solid-state batteries. Encouraged by its initial success, the company made a bigger bet to generate more funds to speed up its research. It went public by merging with a special purpose acquisition company (SPAC) in November 2020. At that time, the company stated its objective of starting commercial production in 2024. In its fourth-quarter results released on Feb. 16, QuantumScape reiterated its expectation of starting commercial production in 2024.
In the last one year, QuantumScape has progressed well on its research plans. As an example, in January, QuantumScape released data on the repeated fast-charge performance of its battery technology, which it sees as a breakthrough. It will allow EVs using QuantumScape's batteries to have both a longer range and quicker recharge than EVs with lithium-ion batteries. In its fourth-quarter letter to shareholders, QuantumScape's management noted, "We are unaware of any other high-energy capable EV battery architecture demonstrating this extreme fast charging over hundreds of cycles without prohibitive battery capacity losses."
QuantumScape is backed by Volkswagen, which has also invested $200 million in the battery company so far. In 2021, QuantumScape collaborated with another automaker who is among the top ten by revenue globally. The company hasn't disclosed the name of this automaker. QuantumScape also collaborated with an international luxury auto company. These automakers intend to use QuantumScape's batteries, when they are produced, if the batteries meet their testing and validation requirements.
Moreover, QuantumScape collaborated with Fluence Energy (FLNC 23.78%) to use its batteries in Fluence's stationary energy storage products. QuantumScape believes that in addition to automotive applications, its batteries will be useful in the fast-growing stationary storage market. Notably, this market could not be as big or lucrative as EVs, and this development can be seen as both positive and negative for QuantumScape. On the positive side, QuantumScape has an additional potential buyer, and market, for its products. On the flip side, it shows that QuantumScape is doubtful about the success or demand for its batteries in transport applications. It also may divide QuantumScape's focus on developing batteries for EVs.
Goals for this year
QuantumScape hasn't designed the final cell format that it intends to commercialize. One of the company's objectives in 2022 is to demonstrate a cell design that will eventually go for commercial production. It intends to deliver its first prototype cells this year. Moreover, the company intends to take delivery of equipment for its pre-pilot plant, to be prepared for delivering sample cells in 2023.
Could this battery stock generate multibagger returns?
QuantumScape says it is making good progress in line with its plans. In the absence of a final product that gets validated by automakers, investors don't have much option except to rely on what the company says. QuantumScape has some notable supporters, including Volkswagen, and a strong board that includes Tesla's co-founder J.B. Straubel. The company seems to be genuinely working on solving some complex engineering challenges related to solid-state technology.
Yet, even if the efforts are genuine, there is no guarantee that QuantumScape will be able to design a solid-state battery that meets automotive requirements and at costs that the company is hoping for. If it fails, the stock may fall even further from its current levels.
Even if QuantumScape succeeds, the kind of margins the company will be able to generate remains to be seen. Also, there is increasing competition in the space. It is important to remember that QuantumScape is ultimately just a battery company. Its stock should surely rise if the company succeeds in commercializing the solid-state technology. However, expecting the stock to generate multibagger returns may be too optimistic.