Is QuantumScape Stock a Buy?

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QuantumScape (NYSE: QS), a developer of solid-state lithium-metal batteries, posted its third-quarter report on Oct. 23. It didn’t generate any revenue, since it hadn’t commercialized any of its products yet. Its net loss widened year over year from $111 million to $120 milion, or $0.23 per share, which matched Wall Street’s expectations.

Those numbers weren’t surprising, but QuantumScape also said that it had finally “begun producing” the first test samples of its QSE-5 batteries during the quarter. It also said it had “begun shipping” those test cells to its automotive customers.

Image source: Getty Images.

These solid-state batteries have an energy density of over 800 Wh/L (watt hours per liter) compared to an average density of 300 Wh/L to 700 Wh/L for traditional lithium-ion batteries, and the ability to be rapidly charged from 10% to 80% in under 15 minutes. The bulls expect QuantumScape to ramp up its production of these batteries to disrupt the lithium-ion market and improve the charging capabilities, range, and safety of electric vehicles (EVs).

QuantumScape’s stock climbed higher after that encouraging business update, but it remains more than 95% below its all-time high from December 2020. Should you invest in this speculative company before it successfully scales up its business?

QuantumScape’s solid-state lithium-metal batteries generate electricity with solid electrolytes, which are denser, more stable, store more energy, and charge more quickly than the liquid electrolytes used in lithium-ion batteries. Smaller solid-state batteries have already been used in smaller devices like wearables and pacemakers, but they haven’t been mass produced for EVs because they’re much more expensive than lithium-ion cells.

QuantumScape went public by merging with a special purpose acquisition company (SPAC) nearly four years ago. At the time, it claimed it could generate $14 million in revenue in 2024 as it commercialized its first solid-state batteries, and then grow its revenue at a whopping compound annual growth rate (CAGR) of 363% to $6.44 billion by 2028.

Those bold claims raised a lot of eyebrows, but Volkswagen (OTC: VWAP.Y) was already a major investor and had been co-developing those batteries with the company for more than a decade. Volkswagen had even established a new group, PowerCo, to test and industrialize QuantumScape’s batteries in 2022.

Volkswagen’s support suggested that QuantumScape had a lot more staying power than many other SPAC-backed start-ups. But it still didn’t come close to commercializing its first batteries this year. It also faced more competition from other start-ups, like Blue Solutions and automakers like Toyota (NYSE: TM) and Nio (NYSE: NIO) in the solid-state battery race.

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