QuantumScape (QS -3.03%) has dramatically underperformed the market over the past year, with shares falling by more than 20%. However, while this remains a pre-revenue business several years after making its publicly traded debut, there are also some impressive signs of progress in the EV battery innovator.
With that in mind, here's a look at the current state of QuantumScape's business, where it could be heading over the next couple of years, and whether the stock could be a smart buy today.
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The current state of QuantumScape
The short version is that QuantumScape is past the prototype stage but isn't quite yet at the commercialization stage where it will start to generate significant revenue. I'd call QuantumScape's business in the "sampling stage," as the current focus is shipping samples of their battery systems to prospective customers for testing purposes.
QuantumScape is taking steps toward commercialization of its product, collaborating with the Volkswagen Group's battery manufacturing company on development, is working with other automakers that could become customers, and is building out a network of vendors and suppliers.
The company believes that its first battery will have an energy density that's significantly greater than traditional lithium ion batteries and will be able to be rapidly charged from 10% to 80% in under 15 minutes.
Additionally, as you might expect, QuantumScape is losing money. After all, regardless of how efficient a company is run, it needs revenue to have a chance at a profit. For the full year, the company is guiding for an adjusted EBITDA loss between $250 million and $280 million.
With about $860 million in cash and liquidity on its balance sheet, QuantumScape has financial runway to fund the business well into 2028 without any need to raise additional capital, and that's excluding the effect of any revenue between now and then.
What's the timeline?
QuantumScape CEO Siva Sivaram recently published his "strategic blueprint," which revealed quite a bit about the company's timeline (without mentioning specific target dates).
First, QuantumScape wants to demonstrate its technology in a real-world application. This will take place in steps, first on a small scale through product samples, but will ultimately evolve into more complete and measurable installations. Then, the company needs to build a network of partners, like the ceramics production partnership with Murata Manufacturing that was recently announced.
Both steps are getting close to becoming a reality to some degree, but there's a long way to go. And to put a date on the process, QuantumScape aims to achieve some commercialization of its first batteries next year.
The third phase of the plan is the long-term strategy, which involves continually improving the platform even after QuantumScape reaches commercialization.
Down 20%, should you buy the stock today?
Sivaram believes that by 2040 there will be "more than a terawatt-hour per year of solid-state batteries in production," and that QuantumScape will be the market leader. For context, global production of all EV batteries in 2024 was less than 0.9 terawatt-hours, so this is a lofty goal.
It currently costs about $140 per kilowatt-hour to make an EV battery, but even if the ultimate cost of solid state batteries is about half of this, which is what several experts predict, this means that we're looking at a $70 billion market size in 15 years. If QuantumScape can lead the charge, the stock could be a massive home run, given its current $2.4 billion market cap ($1.5 billion excluding the company's net cash position). But it's important for investors to remember that's a big if. There are some competitors with deep pockets, like Toyota (TM -0.39%), that are developing their own solid state EV batteries, and although QuantumScape was an early mover when it comes to developing its technology, there's no guarantee it will win the race.
