QuantumScape Stock: What Are The Risks?

Investors don’t really know what to make of QuantumScape (NYSE: QS), a startup that is working on solid-state lithium batteries for electric vehicles. The stock trades at about $22 per share, down by about 83% from its all-time highs, although it remains up by over 120% since it was listed last year. The solid-state lithium anode rechargeable batteries that the company is developing are viewed as the “Holy grail” of sorts in the battery industry, as they could increase the range of EVs by as much as 50%, reduce charging times to under 15 minutes, while also making EVs safer by avoiding the use of flammable liquids. However, there are three major risks that we see for the stock at this point.

QuantumScape has apparently achieved some pivotal breakthroughs in solid-state battery technology, but there’s no way for investors to really test the company’s claims around its technology, apart from its press releases and presentations. Although secrecy is standard practice in the battery development process, this is risky for investors in a publicly listed company with a market cap of almost $10 billion. While investors can take some comfort from the fact that the company has big-name backers, including Volkswagen Group and Bill Gates, their risk to reward expectations might be different from smaller investors. Even if the technology development is on track, commercialization, that is, taking it from the lab into mass production for hundreds of thousands or potentially millions of units, could also be tricky. Another concern is likely to be the competition. There’s a lot of research around solid-state batteries by startups, establish companies, and academia, and it’s probably realistic to assume that QuantumScape won’t be the only player with the tech. Toyota expects to unveil a functional prototype with a solid-state battery as early as this year and apparently holds the most patents relating to solid-state batteries. In comparison, QuantumScape plans to commence pilot production from 2024 onward.

See our indicative theme of Electric Vehicle Component Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries.

[7/12/2021] Down 20% Over The Last Month, Is It Time To Buy QuantumScape Stock?

QuantumScape (NYSE: QS), a startup that is working on solid-state lithium metal batteries for electric vehicles, has seen its stock price decline by close to 9% over the last week (five trading days) and remains down by about 19% over the last month (21 trading days). Although there wasn’t much news specific to the company, the selloff comes on the back of a broader sell-off in the EV space over the past week and a pivot away from futuristic stocks with the U.S. Federal Reserve turning increasingly hawkish. QuantumScape, which is likely at least three years away from generating meaningful revenues, has been especially volatile. So will the declines continue for the company, or is a rally looking more likely? Per data from the Trefis Machine learning engine, which analyzes historical price information, QuantumScape stock has a 52% chance of a rise after declining by about 19% over the last month. See our analysis on QuantumScape Stock Chances Of Rise for more details.

So what’s the longer-term outlook like for QuantumScape? The company claims that its batteries could increase the range of EVs by as much as 50%, reduce charging times to under 15 minutes, and also make EVs safer. If QuantumScape delivers on these promises, it could be set to disrupt a very large and highly lucrative market. However, QuantumScape is a highly secretive company and there’s no way for investors to really test the company’s claims around its technology, apart from its press releases and presentations. There is a lot of research happening in solid-state battery technology in start-ups and academia and it’s safe to assume that QuantumScape will not be the only company with solid-state technology. However, with the stock down by about 50% year-to-date, and by over 80% from its all-time highs, the risk to reward prospects are looking a bit better for the stock, which is a pure-play bet on the next generation of battery technology.

[5/17/2021] Down 80% From Its Highs, QS Stock Is Still Risky

QuantumScape (NYSE: QS), a startup that is developing solid-state lithium metal batteries for electric vehicles, has seen its stock price decline by close to 45% year-to-date and by about 80% from all-time highs. The stock closed at about $27 per share on Friday. The sell-off is driven by multiple factors, including a highly critical report from well-known short-seller Scorpion Capital, the company’s move to raise additional funding via a stock sale below market prices back in March, and also due to a broader sell-off in high-growth and futuristic stocks. So is QuantumScape stock a buy at current levels? We don’t think so, considering the relative lack of transparency relating to the company’s technology, the long-time horizon to scale-up, and strong competition. Here’s more.

QuantumScape aims to disrupt a large and very lucrative market, with the company claiming that its batteries will increase the range of EVs by as much as 50%, reduce charging times to under 15 minutes, and make EVs safer. However, QuantumScape remains a highly secretive company and it is hard for investors to really test the company’s claims around its technology. Even if the company’s claims are real, moving promising technology from the lab into mass production of hundreds of thousands or millions of units isn’t easy. The company is looking to begin production around 2024, but it could take even more time to scale up, and there’s a lot that can go wrong in this time frame. Moreover, competition is also rising. There is a lot of research happening in solid-state battery technology in start-ups and academia and it’s safe to assume that QuantumScape will not be the only company with solid-state technology. For instance, Toyota expects to unveil a functional prototype with a solid-state battery as early as this year and apparently holds the most patents relating to solid space batteries.

See our indicative theme of Electric Vehicle Component Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries.

[3/29/2021] What’s Happening With QuantumScape Stock?

QuantumScape (NYSE: QS), a startup developing solid-state lithium batteries for electric vehicles, has seen its stock price decline by close to 25% over the last week, trading at levels of around $44 on Friday. The sell-off was driven by news that the company will raise additional capital via a stock sale. The offering is priced at $40 per share, well below the $60 plus levels, the stock was trading around on Monday. So is QuantumScape stock a buy at current levels? We don’t think so for a couple of reasons.

QuantumScape technology holds a lot of promise, offering better energy density, quicker charge times, longer lifespans, and better safety compared to conventional liquid electrolyte technology. However, the company’s $16 billion valuation at this point is hard to swallow. The company is still in the research and development phase and generates no revenue. Although the company is building out its first factory in California, with production likely to start around 2024, meaningful sales are only likely in around four or five years, over which a lot could change given the uncertainties of R&D and production ramp-ups. Also, QuantumScape isn’t the only company developing solid-state batteries. Auto market leader Toyota expects to unveil a functional prototype with a solid-state battery as soon as this year and the company also apparently holds the most patents in the solid space battery space. Another start-up, Solid Power, also appears to be ahead of QuantumScape in some respects. Considering the long-time horizon to scale-up, and strong competition, we think that QuantumScape remains a gamble of sorts for investors.

[2/8/2021] Why QuantumScape Stock Has Been Declining

QuantumScape (NYSE: QS), a startup developing solid-state batteries for electric vehicles, has seen its stock price decline by almost 30% over the last month. So what’s driving the sell-off? Firstly, analysts haven’t exactly been positive on QuantumScape, assigning neutral or negative ratings on the stock. Secondly, momentum has played a big role in driving up EV stocks last year, driven by retail investors who tend to buy stocks because they are going up. This partly drove QuantumScape’s post-IPO rally in December. However, investors are likely recognizing that although QuantumScape has the potential for large returns, they are quite far out in the future. The company is only expected to start generating meaningful revenue in about four or five years, over which a lot can change. Other companies are working on similar technology, including Solid Power, a start-up that appears to be ahead of QuantumScape in some respects. Thirdly, the supply of QuantumScape stock has been increasing since its IPO. In late December, the company filed an amended S-1 filing that registered over 300 million shares from “selling security holders,” with over 60 million shares not subject to any lockup agreement.

See our indicative theme of Electric Vehicle Component Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries.

[1/19/2021] Does Battery Innovator QuantumScape’s Stock Deserve A $20 Billion Valuation?

QuantumScape, a startup developing solid-state lithium-ion batteries for electric vehicles, went public last November, after completing a merger with a special purpose acquisition company. The start-up is now valued at about $20 billion, despite the fact that commercial production of its batteries is still several years away. Does QuantumScape stock deserve such a high valuation? Let’s take a look at the technology and potential to find out more.

Solid-state batteries, essentially replace the conventional liquid electrolyte – which conducts the electric current – with a solid electrolyte. These batteries offer better energy density, quick charge times, longer lifespans, and better safety. While researchers have been trying to build solid-state batteries for decades, they have failed for a variety of reasons. However, QuantumScape claims to have solved the problem. In December, the company released performance data for its technology noting that its cells charge to 80% of capacity in 15 minutes, retain more than 80% of its capacity after 800 charging cycles, and have an energy density of more than 1,000 watt-hours per liter, which is well ahead of commercially lithium-ion cells. ^[1]

Investors have been betting big on EV stocks through Covid-19, with stocks ranging from manufacturers such as Tesla to more niche component suppliers such as Luminar, a lidar startup, seeing valuations soar. Now, battery technology forms the foundation of an electric vehicle, and a big battery breakthrough on the lines that QuantumScape is working on could really disrupt the economics and perception surrounding EVs. Considering this, and the fact that there are few publicly listed options in the space, investors are paying a premium for QuantumScape. Moreover, unlike other hot startups that have made big claims about technology and then fizzled out, outside scientific experts have been able to endorse QuantumScape’s technology. The company has also attracted big-name investors, including Volkswagen which has invested $300 million and intends to use QuantumScape batteries in its vehicles.

However, there are real risks as well. It will take years for mass commercial production and there could be several challenges along the way. For perspective, the company expects to post Revenues of just $39 million in 2025, scaling up to $275 million in 2026 and $3.2 billion in 2027. ^[2] Competition in the battery space is also intense, with startups and incumbents such as Tesla aiming to make big battery advancements in the coming years. Separately, investors are also booking some profits in the stock, which has seen a significant correction in recent weeks, falling from around $130 in mid-December to about $54 presently, a decline of over 55%. Considering that the company has no real financial track record, the stock is likely to remain significantly volatile.

See our indicative theme of Electric Vehicle Component Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries.

[Updated 12/4/2020] Is Luminar A Good Way To Play The Future Of Automobiles?

Luminar (NASDAQ: LAZR), a company that makes lidar scanners – a laser-based technology that is used to detect nearby objects in self-driving cars – went public on Thursday. Luminar had a market cap of close to $8 billion in Thursday’s trading, despite posting Revenues of just about $13 million last year. ^[3] So what’s the narrative driving the company’s lofty valuation? Firstly, investor interest in the self-driving market is high, and Luminar is one of the few pure-play stocks in the space. Luminar pegs its total addressable market at about $5 billion presently and estimates that it could grow to about $150 billion by 2030. Secondly, Luminar’s products combine its custom components and related software into a complete package, which should help the company differentiate itself versus off-the-shelf lidar components which are more commoditized. The company has also forged significant partnerships, including deals with seven of the top 10 automakers, and has an order book of about $1.3 billion. That said, there could be some technology risks. Tesla – the most valuable carmaker and the undisputed leader in the self-driving space at the moment – doesn’t use lidar technology, instead opting for lower-cost hardware such as cameras and radar systems, which it says perform better compared to lidar.

[Updated 10/19/2020] Why Suppliers Might Be A Better Way to Play The Electric Vehicle Market

Investing in the fast-growing electric vehicle market looks tricky at the moment. Pure-play EV stocks have rallied big this year and look overvalued. For instance, Tesla is up 5x this year, while China’s Nio is up over 7x. On the other hand, mainstream automakers who have been slowly transitioning to electric drivetrains could face financial challenges due to the disruption caused by Covid-19. Our indicative theme of Electric Vehicle Component Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries – could be a good way to play the growing electric vehicle market, without having to bet on individual brands. The theme is up by about 9% year-to-date, versus the S&P 500 which is up by about 8% over the same period. While Albemarle is the strongest performer in the theme, up by about 30%, BorgWarner stock is down by about -10%. Below, is a bit more about these companies and how they’ve fared so far this year.

Albemarle is the world’s largest producer of lithium for EV batteries. Most electric vehicles are powered by lithium-based batteries and it’s likely that demand for the material will rise as EV adoption grows. The stock is up by about 30% year-to-date.

TE Connectivity provides a range of products including connector systems, sensors, and relays for a range of industries such as automotive, aerospace, defense, and oil and gas. The company has increasingly been focusing on products for hybrid and electric vehicles. The stock is up by about 14% year-to-date.

Amphenol Corporation sells a range of components used in EVs including charging inlets, charge plugs, various sensors, and power distribution systems. The stock is up by about 7% year-to-date.

APH

Aptiv provides a range of solutions for the auto industry, including autonomous driving technologies, safety technologies, components, and wiring. The stock is up 4% this year.

BorgWarner is an auto components and parts supplier best known for its manual and automatic transmissions. The company is doubling down on the EV space, producing electric motors, power transmission, and power electronics for electric vehicles. The stock is down -9.5% this year.

While electric vehicle stocks have had a solid run over the past year, 2020 has created many pricing discontinuities that can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for General Motors vs Comcast.

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