A huge shift toward renewables is underway, and QuantumScape (QS 2.67%) is one company pushing electric vehicle (EV) battery technology forward.
QuantumScape is developing solid-state batteries that could improve on existing technologies, helping EVs charge faster and drive further.
The up-and-coming battery technology company is making strides, and its growth potential could be huge. But is the stock worthy of a spot in your portfolio today? Let's dive into the business and find out.
NASDAQ: QS
Key Data Points
Reasons to buy or hold
QuantumScape is developing next-generation battery technology that it believes will make EV adoption more appealing to a broader audience. That's because its solid-state lithium-metal batteries can lead to greater energy density, faster charging times, and enhanced safety compared to modern batteries.
After over a decade of development, the company is making solid progress. The company works closely with Volkswagen, which has formed a 50-50 joint venture in the start-up and invested $300 million to help it reach industrial-level production.
Earlier this year, Volkswagen's battery company, PowerCo, completed a test of QuantumScape's solid-state battery and achieved 1,000 charging cycles while the cell "barely aged." It also noted that an electric car could drive more than 500,000 kilometers "without any noticeable loss of range."
The company began shipping its Alpha-2 prototype battery cells to automotive customers in March. This is one part of QuantumScape's multiphase plan to get to its first commercial product, QSE-5.
Its early results are promising. The Alpha-2 prototypes have a higher capacity and deliver more power compared to lithium-ion cells. Not only that, but these batteries can fast-charge from 10% to 80% in less than 15 minutes.
Image source: Getty Images.
If QuantumScape can ramp up production, its upside potential could be huge. According to a report by Straits Research, the global solid-state battery market could grow at a compound annual growth rate (CAGR) of 36.4% through 2030. However, before scooping up shares of the battery maker, consider the following.
Reasons to sell
Although QuantumScape is making good progress in ramping up production, investors should be cautious about the battery maker for several reasons.
For one, the company failed to meet some ambitious growth targets it had laid out when it went public a few years ago. For example, the company projected to make $14 million this year as it commercialized its first batteries. Delays have pushed back those projections, and analysts expect the company to generate $5 million in revenue in 2025.
QuantumScape also faces intense competition. Toyota plans to bring its solid-state batteries, with up to 745 miles of range, to the market as soon as 2027, with mass production soon after. Chinese automaker Nio has also recently completed a test where its semi-solid state battery traveled over 650 miles on a single charge.
Furthermore, Volkswagen may be losing faith in QuantumScape after it held talks with Blue Solutions, a French producer of solid-state batteries.
Finally, there is the question of QuantumScape's capital situation. The company posted a net loss of $445 million last year and lost another $121 million in the first quarter. It has around $1 billion in cash and marketable securities. However, the company expects an adjusted EBITDA loss of around $250 million to $300 million, twice the amount it projected just a few years ago.
QS Net Income (TTM) data by YCharts
Buy, sell, or hold?
QuantumScape is an exciting company, and its battery technology gives it excellent potential in the growing EV space. However, it is also a high-risk, high-reward stock.
The company continues to burn cash as it develops its batteries, and it will take time to ramp up production and see meaningful revenue growth. Most investors are best off staying on the sidelines during the company's early developmental days. Given where QuantumScape is today, I would wait on the sidelines until it gets closer to achieving commercial production at scale.
