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Electric vehicles (EVs) are at the forefront of transforming transportation, offering a greener and more sustainable alternative to gas-powered cars. Yet, the EV industry is not without its challenges. Long charging times, limited driving range, and the need for durable, high-performance batteries remain significant hurdles. That’s where QuantumScape Corporation (QS) comes into play. A trailblazer in battery innovation, the company aims to overcome these barriers by delivering cutting-edge solutions to transform EV performance.
Since going public through a SPAC merger in 2020, QuantumScape has emerged as a leader in solid-state lithium-metal battery development, a breakthrough poised to transform EV performance and enhance consumer appeal. Earlier this year, in January, the company garnered major attention with impressive results from an endurance test conducted by Volkswagen's (VWAGY) battery manufacturing subsidiary Power Co. This achievement not only reinforced QuantumScape’s reputation as a game-changer in the EV battery space, but also reignited investor confidence in its revolutionary technology.
Plus, the company's latest quarterly earnings brought another exciting news for investors. QuantumScape revealed that it has now started producing its first B-sample cells on a small scale for automotive testing purposes. This is a groundbreaking achievement, as these anode-free solid-state lithium-metal cells are, according to the company, the first of their kind to be designed for automotive applications. With this achievement secured, QuantumScape now enters the next critical phase of B-sample testing.
Yet, despite these impressive breakthroughs, QS stock has encountered significant challenges. After reaching a high of $10.03 in January 2024, the stock has seen a 50% decline, signaling the tough journey ahead for the company as it works to scale its battery technology. While the progress is undeniable, QuantumScape is still in the early stages of its commercialization process, with critical testing and further refinement of its batteries yet to unfold. With these factors in mind, the question remains: Is it time to buy, sell, or hold this stock in the coming year?
About QuantumScape Stock
California-based QuantumScape Corporation (QS) is on a mission to revolutionize energy storage and drive the shift to a decarbonized future, starting with transportation. Founded in 2010, the company is tackling the limitations of current lithium-ion batteries by developing a solid-state solution that offers faster charging, longer-lasting power, and enhanced safety.
At the heart of this innovation is a patented ceramic electrolyte separator, allowing for the use of lithium-metal anodes that are 10 times more energy-dense than conventional alternatives, making the company’s batteries not only safer but also more cost-effective.
Presently valued at around $2.6 billion by market cap, shares of this solid-state lithium-ion battery maker are deep in the red over the past year, shedding almost 23% compared to the broader S&P 500 Index’s ($SPX) healthy 26.2% return during the same time frame. This decline can be attributed to investors’ unease about the company’s journey to profitability despite the significant strides it has made in solid-state battery technology.
QuantumScape Takes Off After Q3 Earnings Release
Despite reporting a loss of $0.23 per share in its Q3 earnings results revealed on Oct. 23 and still being a pre-revenue company, shares of QuantumScape soared a remarkable 25.5% in the subsequent trading session, triggered by exciting announcements regarding the company’s B-sample cells, called QSE-5, which boast a stunning energy density of over 800 watt hours per liter (Wh/L) and feature an impressive fast-charging capability, going from 10% to 80% in under 15 minutes.
In a letter addressed to shareholders, the company proudly revealed the commencement of low-volume production of its highly anticipated QSE-5, which was QuantumScape’s “most important goal for 2024,” and said it has already begun shipping these cells for automotive customer testing. QuantumScape acknowledged that the road ahead is filled with rigorous testing, which will span several months with its automotive customers. The company also emphasized the need to enhance key metrics like yield, cell reliability, and equipment productivity, which will require the successful integration of its advanced Cobra separator process. Set to be introduced in 2025, Cobra marks a critical stage in QuantumScape's journey toward commercialization.
Furthermore, QuantumScape has successfully extended its cash runway forecast into 2028, largely due to a strategic agreement with PowerCo in July, which freed up $134 million previously allocated for the joint venture. This deal also included a $130 million royalty prepayment from PowerCo, contingent on the company meeting certain technical milestones. In Q3, the company reported capital expenditures of $17.9 million, which were in line with management’s expectations and primarily due to equipment purchases for the low-volume production of QSE-5 prototypes and the development of the Cobra process.
These investments set the stage for a ramp-up in higher-volume QSE-5 production slated for 2025. QuantumScape ended the quarter with a strong liquidity position of $841 million, allowing it to continue funding its ambitious growth initiatives. Looking forward to full-year fiscal 2024 results, the company is tightening its adjusted EBITDA loss forecast to range between $280 million and $300 million. Additionally, capital expenditure for the entire year has been revised downward to land between $60 million and $75 million, reflecting both operational efficiencies from the PowerCo deal and a shift in the timing of certain payments into 2025.
What Do Analysts Expect for QuantumScape Stock?
After QuantumScape’s Q3 earnings revealed the start of low-volume production for its B-Sample cells, the QSE-5, analysts on Wall Street shared their perspectives on the company’s future. For instance, on Oct. 24, TD Cowen analyst Gabriel Daoud kept a neutral stance on the stock and assigned a $5 price target despite acknowledging the company’s progress so far.
The analyst pointed out that QuantumScape has made notable strides in manufacturing, particularly with the shipment of its B-sample cells for automotive testing, marking a key step toward commercialization. The firm also highlighted QuantumScape’s adherence to its timeline, noting that the company is on track to produce high-volume B-samples by fiscal 2025. The next steps, including the production of C-samples, will be guided by the licensing agreement with PowerCo.
This strategic partnership is poised to be a pivotal factor in shaping the future of QuantumScape’s production and distribution, ensuring a strong foundation for its upcoming product developments. Additionally, on the same day, Truist Securities also maintained a “Hold” rating, setting a price target of $6, further underscoring the cautious sentiment surrounding the stock.
Overall, Wall Street still remains largely cautious about QS stock, maintaining a consensus rating of “Hold.” Of the nine analysts offering recommendations, one advises a “Strong Buy,” six advocate a “Hold,” and the remaining two analysts maintain a “Strong Sell.”
While the average analyst price target of $5.73 indicates 7% potential upside from the current price levels, the Street-high price target of $10 suggests that QS could rally as much as 90% from here. QuantumScape is certainly making bold moves with its production and the strategic PowerCo partnership, positioning itself for future growth. But with potential challenges ahead in scaling and meeting timelines, it might be wise for investors to closely monitor QuantumScape for now as it enters a crucial phase in its journey toward full commercialization.
