There was plenty of euphoric excitement over all things electric vehicle (EV) a few years ago. Every investor wanted to find the next Tesla. One way to play that was to invest in a company that would support the overall growth of EVs, rather than trying to pick the next successful EV maker.
That's why shares of solid-state EV battery company QuantumScape (QS -1.46%) soared in late 2020 after the company went public. But much of that excitement was premature as the adoption of EVs and the development of new technologies would take years to play out. That gave patient investors an advantage.
Three years later, QuantumScape is closer to commercializing its product and the stock has plunged 90%. So now that the stock has dropped, it's worth digging into whether it is the time to buy QuantumScape.
Planning on a solid-state future
An investment in QuantumScape is a bet on the successful commercialization of its solid-state battery technology. Conventional lithium-ion batteries used for EVs use graphite anodes. While that works for the use case, it also has the downside of a low energy density. That limits the range of current EV batteries.
QuantumScape's solution is to substitute anode-free lithium metal for the graphite. That would provide the highest energy density for EV batteries and go a long way toward addressing consumer hesitancy related to range anxiety. That solution also has its own challenges, however. The company is trying to overcome the scientific downside by using a ceramic solid separator to help stabilize the lithium metal. Thus the "solid-state" terminology for the batteries.
Progress and speculation
QuantumScape has made progress on its battery design to use the technology for EVs. It has successfully scaled the battery cell layer count in prototypes without sacrificing capacity retention -- meaning the batteries can last. It believes it is in position to ramp up to industrial-level manufacturing rates. And it has shipped prototypes to potential EV customers for proof-of-concept testing. The company reports at least one prospective customer has achieved cycling and energy retention results well beyond QuantumScape's stated commercial targets.
QuantumScape's stock, however, remains quite speculative. Even down over 90% from its high, the company is still valued with a market cap of more than $3.5 billion. And it could be at least two more years before it potentially generates meaningful revenue.
One bit of good news is that QuantumScape ended the third quarter with more than $1.1 billion in liquidity. It believes its cash balance will carry it into 2026. Some of that cash came from investments from one large potential customer. Volkswagen Group has long been a partner for QuantumScape and is one of six automotive manufacturers currently testing its battery cells.
That puts QuantumScape stock in an interesting place for investors. If it announces continued progress toward successful commercialization, the stock will move higher in anticipation of sales. But if it fails, or another company with promising battery technology beats it to market, the stock could easily go to zero. That's why buying this stock even while it's down is only for a speculative portion of any portfolio. Allocate accordingly, and this is one EV stock that may be worth betting on.
