QuantumScape (QS 2.25%) and ChargePoint Holdings (CHPT 0.56%) were both red-hot stocks during the buying frenzy in electric vehicle (EV) stocks in late 2020 and early 2021.
QuantumScape, a developer of solid-state batteries, merged with a special purpose acquisition company (SPAC) in November 2020. Its shares opened at $24.80 on the first day before soaring to an all-time high of $131.67 a month later. ChargePoint, a leading builder of EV charging networks, also went public by merging with a SPAC in March 2021. Its stock started trading at $30.11 and rose to its post-merger high of $35.69 in June.
But today, QuantumScape's stock trades at about $7 while ChargePoint is worth $2. Both stocks lost more than 90% of their value as the EV market cooled off and rising interest rates popped their bubbly valuations. Should contrarian investors buy either of these out-of-favor EV stocks before the bulls rush back?
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QuantumScape still hasn't sold any batteries
Solid-state batteries generate power with solid electrolytes. This makes them more resistant to higher temperatures and less susceptible to fires than lithium-ion batteries, which generate power with volatile liquid electrolytes.
Solid-state batteries are still more expensive, less dense, and less durable than lithium-ion batteries, but QuantumScape aims to close that gap. It's currently producing a solid-state battery that could revolutionize the EV market with a range of 650 km and a charge time of just 15 minutes. Its largest investor is Volkswagen, which started working with the company over a decade ago and is currently co-developing batteries with the company through a joint venture.
NASDAQ: QS
Key Data Points
The market's excitement about QuantumScape's technology drove its market cap to a peak of $47.8 billion in late 2020 -- even though it hadn't generated any revenue yet. That's why its stock collapsed as rising interest rates crushed speculative stocks.
QuantumScape only has a market capitalization of $3.4 billion today, but it still doesn't expect to generate any revenue until 2024. According to its pre-merger presentation, it could potentially increase its revenue at a compound annual rate of 363% from $14 million in 2024 to $6.44 billion in 2028. It also expects to turn profitable on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2027.
Analysts expect QuantumScape to rack up operating losses of more than $400 million per year thorough 2025, but it still ended its latest quarter with $1.13 billion in cash, cash equivalents, and marketable securities on its balance sheet. Its low debt-to-equity ratio of 0.1 should also give it plenty of room to raise more cash. So for now, QuantumScape remains a highly speculative play that could soar higher once it commercializes its products.
ChargePoint needs to stabilize its business
ChargePoint is already the largest builder of EV charging stations in North America and Europe. Its revenue grew 65% in fiscal 2022 (which ended in January 2022) and jumped 94% to $468 million in fiscal 2023. That actually exceeded its pre-merger target for generating $346 million in revenue in fiscal 2023.
Its revenue rose 48% year over year in the first half of fiscal 2024, but it expects its revenue to decline in the second half as demand for new charging stations dries up. As a result, analysts expect its revenue to rise just 9% to $510 million for the full year -- which would broadly miss its pre-merger target of $602 million.
NYSE: CHPT
Key Data Points
That deceleration rattled ChargePoint's investors, but it wasn't too surprising given the broader slowdown of the EV market. The macro headwinds have also been forcing companies to rein in their spending on optional upgrades like EV charging stations. ChargePoint also faces fierce competition from Tesla's expanding network of Superchargers and other smaller EV network builders like Blink Charging.
To make matters worse, ChargePoint recently replaced its CEO and CFO for unclear reasons and took a $42 million impairment charge related to its inventories. Analysts expect its net loss to widen from $344 million in fiscal 2023 to $436 million in fiscal 2024, followed by narrower net losses in fiscal 2025 and fiscal 2026.
That's a bleak situation for a company that ended its latest quarter with just $367 million in cash and equivalents. Its high debt-to-equity ratio of 2 could also limit its ability to raise fresh cash at reasonable rates as long as interest rates stay elevated. Its market capitalization of $846 million might seem cheap at less than 2 times this year's sales, but it could continue to trade at that discount until it stabilizes its revenue growth and narrows its losses.
The better buy: QuantumScape
QuantumScape is still a highly speculative investment, but its stronger balance sheet and explosive growth potential make it a better buy. ChargePoint isn't down for the count yet, but it needs to prove its capital-intensive business model is sustainable before it can command a higher valuation in this bumpy market.
