Mohit Oberoi - Barchart - Thu Jul 25, 8:45AM CDT
Solid-state battery company QuantumScape (QS) was among the many companies in the green energy ecosystem that went public in 2020. Like almost all other high-flying startup companies of that era, QS now trades well below the special purpose acquisition company (SPAC) merger price of $10.
Furthermore, like all other startup green energy companies QuantumScape also went through the boom-bust cycle. At its peak, it was valued at more than Ford (F), but now its market cap is just around $3.7 billion.
The stock tumbled in the first half of this year, but briefly turned positive for 2024 earlier this month after announcing a new deal with Volkswagen(VWAGY) which also happens to be its biggest shareholder.
QS stock is trading sharply lower today after the company reported a wider-than-expected loss in Q2. What’s the 2025 forecast for QuantumScape, and is the company worth the risk?
QuantumScape Is Still a Pre-Revenue Company
QuantumScape is a pre-revenue company, as its batteries have yet to be commercialized. The company expects to post an adjusted earnings before interest tax, depreciation, and amortization (EBITDA) loss between $250 million-$300 million in 2024. However, management expects 2024 capex to be towards the lower end of its guidance of $70 million to $120 million.
Like almost all other companies that went public through the SPAC merger approach, QuantumScape is also running well behind the milestones that it outlined in its merger presentation.
QS is a Play on Solid-State Batteries
The battery is the most important hardware of an electric car – even as software could arguably be the differentiator between cars going forward. QuantumScape is developing solid-state batteries that can address some of the issues with the current lithium-ion (LI) batteries.
Solid-state batteries are denser and safer than LI batteries. They also have a much lower charging time, run longer per charge, and have a longer life. If successful, they can help revolutionize the EV industry, which is struggling with lower-than-expected adoption – especially in the U.S. market. Also, they can have usages beyond just electric cars, and could be suitable for consumer appliances as well as flying aircraft.
QuantumScape Has Yet to Commercialize Its Battery
Earlier this year, QuantumScape shipped its Alpha-2 prototype cells to different customers in its core automotive market, as well as some users in the consumer electronics sector. It is also working on QSE-5 cells, whose initial low-volume B-sample production would run on the company’s Raptor process.
The company expects to beginhigh-volume QSE-5prototype production in 2025 using the Cobra equipment and process.
Volkswagen Deal Helped Increase the Cash Runaway for QS
Earlier this month, QuantumScape and Volkswagen signed a new licensing deal that superseded the previous joint venture under which the two companies would have co-produced batteries. The deal helps make QuantumScape a capital-light business, as it won’t need to spend towards the joint venture, and PowerCo, which is Volkswagen Group’s battery company, will produce them under the license.
Volkswagen will also prepay $130 million in royalties to QuantumScape, subject to fulfillment of certain conditions. Since it’s a non-exclusive license, QS is free to pursue such deals with other companies. The deal also increased QuantumScape’s cash runaway to 2028, and the company now has enough cash to run the business for over four years.
Incidentally, since mid-2023, Volkswagen has also invested in Chinese EV company Xpeng Motors(XPEV) and U.S.-based EV startup Rivian (RIVN), as the German automaker tries to partner with promising startup companies in the space.
QuantumScape Stock Forecast 2025
Wall Street analysts are bearish on QS, though, and it has a consensus rating of “Hold.” Of the 9 analysts covering the stock, only 1 has rated it as a “Strong Buy,” while 5 rate it as a “Hold.” One analyst rates QuantumScape stock as a “Moderate Sell,” while 2 rate it as a “Strong Sell.”
QS stock trades above its mean target price of $6.21, but the Street-high target price of $10 is 34% higher than Wednesday’s closing prices.
I believe that if successfully commercialized, solid-state batteries can be an exciting industry, and QS is among the best ways to play that space. However, I find the company’s valuations a bit high, and the risk-reward does not look favorable enough to bet on the stock.
The management has to execute well, including the high-volume QSE-5 prototype production in 2025. All said, while the deal with Volkswagen helped lower the company’s cash needs and increase its runway to 2028, I don’t find the current price levels tempting enough - especially as a lot of other opportunities arise amid the broader market meltdown.
On the date of publication, Mohit Oberoi had a position in: RIVN , XPEV , F . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
