QuantumScape (QS 5.69%) is trying to achieve something with its battery technology that has never been accomplished. Its "solid-state" battery doesn't need the liquid or gel found inside existing batteries, making it lighter, safer, and higher-performing. The company is the rare true potential game changer.
That said, QuantumScape is pre-revenue and is also the true definition of high-risk and high-reward -- not an investment for the faint of heart. If investors can stomach the high-risk part that comes with owning shares of QuantumScape, here are five factors that could push the company from dream to dream-like returns.
Management incentives
A key part of finding successful investments is to find management with incentives that align with long-term company success. QuantumScape has that, and management milestones include completing sample A and B prototypes of its technology, as well as long-term milestones such as $10 billion in generally accepted accounting principles (GAAP) revenue and 20% of global market share (excluding China).
Going with those milestones in tranches are stock price targets between $60 and up to $300, which are tantalizing returns for a pre-revenue company with a stock price trading in the single digits currently. These milestones are long-term-oriented and are reachable if QuantumScape proves its technology on commercial scale -- a big if, to be fair.
Anode free
Part of the advantage with QuantumScape's battery technology is that its solid-state separator is designed to enable anode-free architecture. This is a complicated way of saying the company's battery will eliminate the anode bill of materials and manufacturing costs found in conventional lithium-ion battery cells.
Aside from the cost savings, QuantumScape's batteries could recharge from zero to 80% in half the time of most lithium-ion EV batteries today, and could have up to 80% more range of current batteries with similar weight.
Successfully achieving this technology, with quality standards on a commercial production level, will provide the company with a significant cost of goods sold (COGS) competitive advantage.
Strong partnerships
Already QuantumScape has a strong set of partnerships within the automotive industry. It has deep ties with Volkswagen since 2012 including a 50/50 joint venture to accelerate the commercialization of the company's solid-state batteries. It's also non-exclusive, meaning Volkswagen has first priority to the technology but QS can explore commercial opportunities with other automakers.
In addition to Volkswagen, QS has contracted with two other top-10 original equipment manufacturers (OEMs), two established global luxury automakers, and one pure-play electric vehicle company.
Beyond EVs
Right now, QS is focused on battery technology for EVs, which is a phenomenal application as EVs are currently transitioning from early adopters to mainstream. But its technology could one day move beyond EV batteries. It has applicability in markets such as stationary storage and consumer electronics like smartphones and wearables, and management has already engaged with leading global consumer electronics companies.
Cash runway
The obvious risk of investing in companies such as QS is that its technology development fails, or the company runs out of cash before its product generates revenue and cash flow to support the business's larger ambitions.
While QS is years away from launching product at commercial volume, assuming its technology develops at the quality and consistency needed, the company's current business model should have the cash to run operations into 2026.
Could QS hit the $60 milestone?
"If QuantumScape can get this technology into mass production, it holds the potential to transform the industry," said Stan Whittingham, co-inventor of the lithium-ion battery and winner of the 2019 Nobel Prize in chemistry, in a QuantumScape press release.
QS is a pre-revenue company facing many challenges to prove its technology and produce it at commercial volume. This is not an investment for the faint of heart, and it remains highly speculative.
But if the company can achieve a couple of management's milestones with its sample prototypes, it has the market tailwind of EVs, strong partnerships, and the cash on hand to give investors reason to believe the stock could pop over the next couple of years.
