Growth stocks come with a lot of ups and downs, but if you can stomach the volatility, they can pay off handsomely in the long run.
One stock I've had my eye on for a while has seen its price fall 95% from its peak in late 2020. It was once the second most valuable car company in America, behind only Tesla. That's because it's a leading developer of a technology that could completely change the $3 trillion auto industry.
The company is called QuantumScape (QS 2.25%). And despite the stock's fall from grace, it's closer to reaching a major breakthrough in the auto industry than anyone else. That's why it's worth taking a closer look while the stock price remains low.
Image source: Getty Images.
A look under the hood
QuantumScape is the leading developer of solid-state battery technology for use in electric vehicles. That represents a step-change in existing lithium-ion batteries used in EVs today, which use a liquid electrolyte solution. Setting aside the technical details, solid-state batteries offer several major improvements over existing EV batteries, including:
- Increased density. Given the space and weight restrictions of automobiles, a denser battery that can produce more energy will result in a longer driving range.
- Increased safety. There's no flammable liquid electrolyte solution in a solid-state battery. That allows manufacturers to use fewer safety components and allow for higher temperatures around the battery, which could improve performance and reduce costs.
- Faster charging. A solid-state battery can charge from 0% to 80% in less than 15 minutes at room temperature. That's more than twice as fast as conventional EV batteries. That can help reduce range anxiety for drivers and get more cars through charging stations.
- Increased lifespan. A solid-state battery can go through a lot more charging and discharging cycles than a conventional battery without losing its ability to hold a charge. That will allow drivers to use their cars longer without having to pay for an expensive battery replacement.
So, it's no wonder auto manufacturers, such as Volkswagen, are extremely interested in the technology. In fact, VW is a top investor in QuantumScape, and it's been testing its prototype batteries.
NASDAQ: QS
Key Data Points
Pushing beyond what anyone expected
What makes QuantumScape so interesting is that its technology is showing extremely promising results.
Alongside its third-quarter results in October, it shared the results of its first A0 prototype cells. It started shipping those cells to prospective customers at the end of 2022. QuantumScape management said that its top-performing cell in one customer's test lab managed to retain 95% of its energy capacity after 1,000 charge and discharge cycles. The company's commercial target is just 80% retention after 800 cycles.
While management emphasized that this result is cherry-picked, it's still better than anyone has ever produced. Nobody, as far as we know, is capable of making a battery that outperforms QuantumScape's technology in the same environment.
There's just one big challenge standing in the way
QuantumScape needs to show that it can manufacture these batteries at scale. That's a challenge with a lot of different sticking points.
For one, building a battery manufacturing plant is expensive. QuantumScape ended the third quarter with $1.1 billion in cash and equivalents on its balance sheet. Management says that will last the company until 2026. So, the push toward manufacturing revenue-generating products needs to come soon, or QuantumScape will have to find new sources of capital, such as further stock dilution (harming existing shareholders) or a manufacturing joint venture (which reduces the upside for shareholders).
QuantumScape can't just build a manufacturing plant and expect things to work out. That's why it's brought on Siva Sivaram to head up manufacturing. He brings expertise in high-volume advanced technology manufacturing that gives some credibility to QuantumScape's plans to ramp up production.
If QuantumScape can get its manufacturing processes in place before it runs through all of its cash, it could turn out to be a grand slam of a stock. Even if it needs to find a manufacturing partner or raise capital, its technology lead is so impressive that it's worth taking a chance on this risky company. Its technology has the potential to end up in every electric vehicle on the road in the future.
