QuantumScape (QS 1.71%), a developer of solid-state batteries, went public through a merger with a special-purpose acquisition company (SPAC) on Nov. 27, 2020. Its stock opened at $24.80 on its first day, but it now trades at about $7. Like many other SPAC-backed start-ups, it disappointed its investors by overpromising and underdelivering.
QuantumScape's lithium-metal batteries, which use solid electrolytes rather than liquid ones, offer better thermal stability, shorter charging times, and higher charging capacities than their lithium-ion counterparts. Its QSE-5 battery, which it co-developed with Volkswagen (OTC:VWAP.Y), has an energy density of 844 Wh/L (watt hours per liter) and can be rapidly charged from 10% to 80% in 12.2 minutes. Most lithium-ion batteries for EVs have an average energy density of 300-700 Wh/L with a fast-charging time of 20 minutes to an hour.
Image source: Getty Images.
That sounds like a huge leap forward for EVs, but those solid-state batteries are also more challenging to manufacture and more expensive to produce. Before its public debut, QuantumScape claimed it could commercialize its first batteries in 2024. But as of this writing, it's only shipped some samples and hasn't commercialized any of those batteries yet.
That's why QuantumScape is a difficult stock to value. The bulls claim it will grow into that valuation as it finally commercializes its first solid-state batteries, but the bears believe its business will fizzle out before that happens. Let's see which scenario is more likely to occur and where its stock might head over the next three years.
NASDAQ: QS
Key Data Points
What's QuantumScape's current strategy?
QuantumScape originally planned to manufacture its own batteries via a joint venture with Volkswagen. But in 2024, it abandoned that capital-intensive strategy and licensed its technology to Volkswagen's battery subsidiary, PowerCo, to produce the batteries. That licensing deal isn't an exclusive one, and QuantumScape plans to license its technology to other automakers to generate a steady stream of higher-margin royalty and licensing revenues.
However, it still faces fierce competition from similar companies such as Blue Solutions, which is also working with Volkswagen, and automakers such as Toyota (TM 1.97%) and Nio (NIO +2.89%), which are both developing in-house solid-state batteries. If those competitors cross the finish line first, QuantumScape could struggle to remain relevant.
To keep pace with those competitors, QuantumScape is upgrading its older Raptor separator process to its newer Cobra process, which should boost its cell reliability, equipment productivity, and overall yields. It expects the upgrade to enable it to produce more samples for Volkswagen and other automakers, thereby supporting the growth of its licensing business.
Will its plan succeed within the next three years?
QuantumScape claims the expansion of its partnership with Volkswagen, which commenced last July with additional milestone payments, will extend its cash runway through 2029.
Wall Street expects QuantumScape's revenue to rise from less than $1 million in 2026 to $48 million in 2027 and $545 million in 2028 as it finally starts licensing its first commercial designs. They expect it to narrow its annual net loss from $407 million in 2026 to $271 million in 2027.
QuantumScape will also likely continue to dilute its shares with secondary offerings and stock-based compensation expenses to preserve its cash. It's already increased its share count by more than 70% since its SPAC merger, and that persistent dilution will make its stock even more expensive. With a market cap of $4.3 billion, it might seem reasonably valued at eight times its 2028 sales -- but that outlook is based on a best-case scenario -- in which QuantumScape doesn't face any more delays, it stays ahead of its competitors, it signs contracts with more automakers, and the EV market expands at a steady rate.
If QuantumScape checks all those boxes, its stock could certainly head a lot higher over the next three years. However, its previous delays, abrupt strategic shifts, and the EV market's recent slowdown all suggest it will miss Wall Street's rosy estimates. So for now, I expect QuantumScape's stock to either stagnate or slip lower over the next three years.
