QuantumScape (QS -1.65%) is aiming to change the game when it comes to batteries for electric vehicles (EVs). If its anode-free lithium-metal batteries see significant market adoption, it could be revolutionary, but the market is clearly skeptical about the business's outlook. The company's share price is down a staggering 95% from the high that it reached shortly after going public through a special purpose acquisition company in November 2020.
Is the stock a worthwhile buy for risk-tolerant investors seeking potentially explosive plays? Or, will shares see their remaining value go up in smoke? Read on for a look at bullish and bearish scenarios, catalysts, and dynamics that will likely be major factors in QuantumScape's performance.
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Bull case: QuantumScape is moving closer to commercialization
QuantumScape is positioned as a leader in the development of solid-state lithium battery technology. Solid-state lithium technology is doing away with the need for the liquid or gel electrolytes found inside current batteries, paving the way for lighter and safer batteries capable of being charged much faster and having longer life cycles. While QuantumScape's stock has fallen roughly 53% over the last year and even further from the high it reached shortly after its IPO, the battery specialist appears to be making progress toward bringing products to market.
With its recently published first-quarter report, the company provided an update on testing for the 24-layer cell prototype that's on track to be the foundation for its first commercial product. Results for the prototype generally appear to be encouraging, demonstrating high-level fast charging and battery capacity loss below 1% after 100 charging cycles. Previous tests have shown that the company's batteries retained well over 80% of initial charging capacity after 400 charging cycles -- the equivalent of roughly 160,000 total driving miles.
QuantumScape's tech is capable of fast charging from 10% battery to 80% battery in 15 minutes and also cuts down on capacity loss typically incurred by fast charging. With most current EV batteries taking roughly 30 minutes to achieve the same fast-charging result and having significantly worse long-term capacity trade-offs, QuantumScape could be on the verge of delivering market-shaping improvements for battery tech.
The company has received investment from Volkswagen, and the battery specialist announced last year that three new auto companies had begun sampling its prototypes. QuantumScape's solid-state lithium-metal battery technology could transform energy storage and charging and pave the way for much wider adoption of EVs. If so, the company would likely go on to see explosive sales and earnings growth.
Bear case: Substantial losses and a business that's still pre-revenue
As a company that's still in a pre-revenue state, QuantumScape is hugely risky. While it has reported some encouraging testing results, its battery technologies are still in prototype phases. The company has touted the performance results of its prototypes, but it has also admitted that it will have to continue making improvements when it comes to the reliability of its cells. QuantumScape may be a year or more away from launching actual commercial products, and there's not much visibility on what business performance will look like over the next few years -- to say nothing about visibility over the next decade.
QuantumScape had operating expenses of $110 million in the first quarter, and it projects that total operating expenses for this year will come in between $225 million and $275 million. Capital expenditures for the year are projected to be between $100 million and $150 million. With roughly $1 billion in total liquidity at the end of Q1, management forecasts that its cash resources will last into the second half of 2025. The company should also be able to raise funds through new stock sales, but the market could react very negatively to stock dilution -- particularly if progress on product commercialization winds up being delayed.
QuantumScape also isn't the only player in potentially revolutionary battery technologies. Contemporary Amperex Technology, or CATL as it's often called, is the world's largest manufacturer of lithium-ion batteries for EVs and has a semisolid-state lithium battery that's projected to be ready this year. QuantumScape also faces potential competition from other large players including Toyota and Samsung and smaller rivals like SES AI, Solid Power and Enovix.
Scaling up manufacturing will be expensive, and it could come with unexpected roadblocks and costs. So while the stock looks much cheaper than it did a year ago, there's still a lot of risk here.
Is QuantumScape worth buying today?
If you're thinking about buying QuanutmScape stock, it's essential to understand that the company's outlook is highly speculative. No two ways about it: This is a high-risk, high-reward situation.
If QuantumScape brings products to market that live up to and improve on its prototype testing results, there's a good chance the company's share price will likely skyrocket. But it's far from certain that the battery specialist will score commercial hits and scale effectively, and the share price could continue plummeting from current levels.
For investors with a high risk tolerance and desire for exposure to emerging battery technologies, I think the stock presents an appealing risk-reward trade-off at current prices. But the stock probably shouldn't account for too much of your overall portfolio, and it's probably a clear no-go for more risk-averse investors.
