Solid-state lithium battery developer QuantumScape (QS 0.80%) once again got routed by the market despite the promise its technology holds for the electric car industry. While it has no revenue since it is a pre-sales startup, it is compiling serious backing from automakers and looks to be meeting the milestone targets it has set for itself.
Even so, the stock closed down 3% prior to the company reporting results after the market closed on Wednesday, and then tumbled another 6% in after-hours trading. (Corporate Event Data provided by Wall Street Horizon.) Year to date, the stock has lost almost a quarter of its value and it has seen three-quarters of its share price wiped away from its 52-week high.
Investor interest in EV stocks has waned since last summer when they were a hot commodity, and so a stock without any product or sales may be too risky for this market environment. Yet, investors still might want to give QuantumScape a closer look.
The promise of a better battery
QuantumScape's technology could revolutionize EV batteries if testing results continue to pan out as they already have. Fast-charging of batteries -- we're talking literal minutes -- have not been possible with existing designs because the batteries will burn up. QuantumScape's anode-free design, however, would allow for charging a battery to 80% capacity in under 15 minutes. Its tests have done so now for over 400 consecutive cycles without issue.
In QuantumScape's earnings report, the battery maker said it met its first milestone last year of designing a single-layer cell battery that worked as expected. Backed by Volkswagen, the achievement unlocked a $100 million investment from the German automaker. The next goal was to achieve the same results with multi-layer cells and so far QuantumScape has successfully completed it with 4- and 10-layer cells.
The company also announced that although it didn't expect its new 16-layer cell to achieve the kind of results it's seen with more mature designs, this one worked right out of the box with results "substantially similar" to its previous tests, and did so for 20 cycles. QuantumScape now expects to be able to build and improve upon this base in the weeks to come.
It's already said its single-layer cell has hit 800 cycles with energy retention above 80% and zero external pressure. That's important because it means QuantumScape's technology could be used in all manner of consumer electronics that have no room for a pressure applicator, opening up new potential markets for it.
Reeling in the small investor
Investors should be aware it's still in very early stages for the company, and solid-state batteries have a somewhat checkered past. QuantumScape, however, has shown considerable progress in the field and in proving its technology works.
It has been fairly transparent about its progress so far, and in meme stock fashion, has embraced the small retail investor. Prior to its fourth-quarter earnings conference call, QuantumScape invited investors to submit questions to the company that it read and answered on the call.
Production on the horizon
QuantumScape is now in the process of fitting out a factory with tool delivery scheduled to ramp up this year and pre-pilot production expected in 2023. Cells with "several dozen layers" are expected to be achieved sometime this year (beyond two dozen layers and you begin to run into the law of diminishing returns on a battery's efficiency and energy density), and test cells for EVs are expected in 2023. Commercialization will come in 2024 or 2025.
Including Volkswagen, QuantumScape says it now has agreements with customers collectively representing more than 15% of global automotive sales in 2020. Of course, these relationships are not guaranteed sales, but it indicates the level of interest for this technology.
In the meantime, the battery maker is still operating in the red. Its adjusted loss before interest, taxes, depreciation, and amortization of $151.9 million is over 2.5 times greater than the adjusted loss a year ago.
One to watch
QuantumScape CEO Jagdeep Singh expects this coming year to be as successful in achieving milestones as was 2021, and he anticipates entering 2023 with $800 million in liquidity available to it to really ramp up growth.
It's often hard to discern the hype from reality with startups, particularly with companies that have no products to market. QuantumScape seems to be the exception to the rule -- which is why investors may wish to recognize just how revolutionary its technology is and how it could transform the electric car industry.