If you want to find one-of-a-kind investments, you need to look for businesses that are doing something better than any competitor, or those doing something that's never been done. Both Ferrari (RACE 0.80%), and QuantumScape (QS 2.46%) fit that bill.
Ferrari has a firm grip on a large piece of the world's ultra-luxury supercar market, even boasting a new $3.9 million vehicle, and its high-end offerings generate juicy margins. QuantumScape could change the electric vehicle (EV) industry with its solid-state batteries, which look to be improvements on the status quo lithium-ion batteries in just about every way possible.
Ferrari is unlike any other automaker, and QuantumScape has tantalizing upside potential if it can execute on commercializing a technology that no other company has delivered before. Both are one-of-a-kind stocks.
Unmatched pricing power under the hood
In the spirit of Ferrari, let's start this paragraph off at 100 miles per hour. The supercar maker's margins absolutely leave the rest of the auto industry in the dust.
RACE Operating Margin (Quarterly) data by YCharts.
There are two things to note about the graph above. First, the obvious: Ferrari's operating margins are nearly triple that of even the more impressive standard automakers. This isn't a fluke. It has consistently logged industry-thumping margins, a testament to its iconic brand, the racing heritage and technology that feeds its vehicles, and a level of exclusivity that gives it serious pricing power.
What many people may not realize about Ferrari is that there are, relatively speaking, so many collectors of its vehicles that it's extremely difficult to get your hands on one even for those who can afford them, and the sales process is a thorough one. This is by design: Ferrari strategically increases its sales by a limited amount of cars each year, always keeping supply below demand. That supports its pricing power while still enabling growth.
Pricing power brings us to the second takeaway from the above graph. The company is achieving consistent improvement. Not only does Ferrari boast much higher margins than the competition, they've been on the rise over time. Ultra-high price tags, brand power, and controlled costs enable Ferrari to fairly consistently improve its margins. That's an attribute that few other automakers (if any) can claim.
Over the past 10 years, Ferrari's total return has about tripled that of the S&P 500, and the company has momentum going for it as it unleashes its latest $3.9 million supercar. Ferrari is one of my favorite, and often overlooked, stocks.
NYSE: RACE
Key Data Points
A game-changing battery company
Pundits may throw the phrase "game-changing" around a little too often, but QuantumScape is one of the rare stocks that deserves it. The company's solid-state batteries can hold more energy and recharge faster than the lithium-ion batteries traditionally used in EVs, and should be manufacturable at lower cost. The problem is that nobody has yet turned this type of technology into batteries suitable for powering cars that can be produced at commercial volume.
QuantumScape has completed testing low-volume samples of what it intends to be its first commercial product, the QSE-5, that were made using its "Raptor" process. The next step is its more advanced "Cobra" process, which it has already begun to order and install equipment for. That will develop through 2025.
But what really has investors intrigued is the company's deal with PowerCo, the battery company of Volkswagen Group. That deal creates a dedicated team between the two companies with the goal of commercializing the production of QuantumScape's solid-state batteries. Under the agreement, PowerCo will initially have the right to use QuantumScape's tech to produce enough batteries to power up to 500,000 vehicles each year, with the option to double that production over time. QuantumScape will also receive a $130 million prepayment of royalties upon satisfactory technical progress. That cash injection has given the company sufficient funds to operate into 2028.
After years of slow and fairly steady progress, with few hiccups and disappointments along the way, the battery company is inching closer to commercialization. If it succeeds, it could turn into a rewarding investment. There are a lot of risks for shareholders, though, including the possibility that QuantumScape will simply be unable to commercially produce its batteries in the volumes necessary or consistently achieve the quality that automakers require. It's also possible that another company will bring a game-changing battery to market first.
Anything is possible, but what we do know is that QuantumScape is making serious progress, and the expansion of its Cobra manufacturing process should only speed things up in 2025. With all that in mind, this could be just the time to open a small position in QuantumScape.
One of a kind
Ferrari's returns have trounced both the broader market and those of its competitors in recent years, but the drawback for investors looking at the stock today is that it trades at a lofty 52 times earnings. Despite the rich valuation, Ferrari has a strong business and will rarely trade at a discount. I'm a believer in the idea that if you're investing in strong businesses with competitive advantages, it matters less what the valuation is when you buy in. Ferrari warrants a serious look from investors interested in making money.
QuantumScape is gaining momentum and could be within a couple of years of commercial production. It has a path to production with PowerCo and has consistently hit its targets on schedule. Investors in QuantumScape will need to accept significant risk of losses, but a small position opened in 2025 could pay off big in the long term if it can execute on its vision. QuantumScape warrants a serious look from risk-tolerant investors who believe the company will be able to commercialize production of its batteries as the EV industry booms globally.
