QuantumScape (QS +9.50%) was once a red-hot stock. The maker of solid-state batteries went public by merging with a special-purpose acquisition company (SPAC) on Nov. 27, 2020, and its stock opened at $24.80 before soaring to its all-time high of $131.67 less than a month later. But today, QuantumScape trades at about $7.
The stock ran out of juice for three reasons: It wasn't generating any revenue yet, it was racking up steep losses, and the electric-vehicle market was cooling off. Rising interest rates also drove investors away from speculative growth stocks.
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Nevertheless, many of QuantumScape's defenders still stuck with the volatile stock because its top investor, Volkswagen (VWAP.Y +5.19%), which partnered with the company more than a decade ago, still seems to be bullish on its future.
But recently, Volkswagen has reportedly been holding talks with Blue Solutions, a French producer of solid-state batteries, as QuantumScape struggled with several ongoing delays. Do those talks raise red flags for QuantumScape's future?
Why Volkswagen became QuantumScape's top backer
Lithium-ion batteries generate power from liquid electrolytes, which are more volatile, less resistant to high temperatures, and more susceptible to leaks and fires than solid-state batteries that are powered by solid electrolytes. Solid-state batteries are already widely used in pacemakers, wearable devices, and small radio-frequency identification products, but they haven't replaced lithium-ion batteries in electric vehicles because they're less durable and more expensive to produce.
QuantumScape is developing a new generation of solid-state batteries for the EV market that address those shortcomings and boast a range of 400 to 500 miles with a charge time of less than 15 minutes. It's also developing batteries that could reach 600 miles with a charge time of less than 30 minutes. That would be a vast improvement from the current generation of lithium-ion batteries, which generally have a range of about 300 miles with a charge time of 30 minutes.
NASDAQ: QS
Key Data Points
QuantumScape was founded with those ambitious goals in mind in 2010, and Volkswagen partnered with the promising startup in 2012 to develop solid-state batteries for its upcoming EVs. Volkswagen believed in QuantumScape so much that it invested $100 million in the company in 2018 and forked over another $200 million investment in 2020.
In early January, Volkswagen's battery unit, PowerCo, completed its first endurance test for QuantumScape's solid-state battery and declared that it "achieved more than 1,000 charging cycles with still more than 95% capacity." Based on that test, Volkswagen said an EV could potentially drive over 310,000 miles "without any noticeable loss of range." For reference, most lithium-ion batteries lose 10% of their range after 200,000 miles.
Is Volkswagen losing patience in QuantumScape?
Yet after all those years, QuantumScape still hasn't commercialized a single battery yet. Before its public debut, it claimed it could start commercializing its products in 2024 and grow its revenue at a jaw-dropping compound annual growth rate of 363%, from $14 million in 2024 to $6.44 billion in 2028. But for now, analysts expect it to generate only $2 million in revenue in 2024 and $15 million in revenue as it starts shipping its first samples.
That's why it's alarming that Volkswagen is allegedly holding talks with QuantumScape's rival Blue Solutions, which already manufactures solid-state batteries for Daimler's electric buses and recently signed a development deal with BMW. Reuters claims Blue Solutions could sign a similar development deal with Volkswagen within a few months, but the two companies neither confirmed nor denied those rumors.
If Volkswagen signs a deal with Blue Solutions to spread out its bets, it would suggest that QuantumScape lacks a meaningful moat against its competitors. Toyota, for example, plans to start mass-producing its own solid state batteries by 2028, and Chinese EV maker Nio has been testing out its own solid-state batteries that reportedly have a range of over 600 miles. That's a grim situation for a company with zero revenue and an enterprise value of $2.4 billion.
Pay close attention to Volkswagen's next moves
It's not unusual for an automaker to diversify its supply chain, but Volkswagen's potential diversification away from QuantumScape might spell trouble for the fledgling battery maker's future. Investors should track Volkswagen's next moves carefully, and they might consider finally selling QuantumScape's beaten-down stock if its top investor drifts away.
