Electric vehicle battery technology company QuantumScape (QS 2.04%) is trading for a small fraction of its all-time high of more than $130.
To be fair, QuantumScape held a triple-digit share price for only a short amount of time in late 2020 and early 2021. It was not only one of the most-hyped SPAC deals of the 2020-21 speculative stock boom at a time when EV stocks were attracting lots of trading volume, but it also was swept up in the "meme stock" frenzy that occurred around the time.
So while it's completely accurate to say that QuantumScape is 96% below its high, I'm not saying that sort of share price was justified or will happen again anytime soon. After all, at one point QuantumScape had a market cap of about $50 billion with no revenue and years until it would possibly produce any.
However, the stock could make a lot of sense at the current level from a risk-reward perspective. Now, QuantumScape has a far more reasonable $2.5 billion valuation, about $1 billion of cash and short-term investments on its balance sheet, and virtually no debt. Not only that, but the business has made some serious progress, and significant revenue could be just a couple of years away. If the company's product truly revolutionizes the electric-vehicle battery industry, it could be a massive winner for risk-tolerant and patient investors.
Where QuantumScape stands today
The short version of what QuantumScape does is that it aims to develop battery technology that is superior to anything on the market today, particularly when it comes to electric vehicles.
Specifically, QuantumScape is developing solid-state lithium-metal battery technology, and believes that battery improvement is the key to achieving broad adoption of EVs. It aims to achieve superior range with higher energy density, faster charging capability than currently exists, while simultaneously making batteries safer and longer lasting than today's products. And the company wants to check all of these boxes while remaining price competitive.
QuantumScape works very closely with Volkswagen and expects it will be the first to use its batteries, but it plans to commercialize its products to many other automakers as well.
Today, QuantumScape is still a pre-revenue business. However, it is getting much closer to production. It just recently started shipping samples of its Alpha-2 prototype battery cells and aims to ramp up prototype production significantly and begin to commercialize its batteries in 2025. The company has $1.01 billion in liquidity, which it expects to last into the second half of 2026.
Recent testing showed that QuantumScape's battery barely aged after 1,000 charging cycles and that an electric vehicle could drive more than 500,000 kilometers (roughly 310,000 miles) without a noticeable loss of range.
Still not for the faint of heart
In many ways, I'd call QuantumScape a stronger business today than it was three and a half years ago when it was trading at its peak, aside from the virtually unlimited access to cheap growth capital it had back then. It's certainly closer to commercializing its batteries, and the recent developments are encouraging.
Having said that, it's important to mention that this is still a highly speculative and pre-revenue business. Be sure to limit your position size, expect a roller-coaster ride for the next several years at a minimum, and don't invest any money into QuantumScape that you can't afford to lose. I'm approaching QuantumScape as a binary outcome stock: My belief is that in 10 years from now, it will either be a massive home run for investors or lose most or all of its value. If you have the risk tolerance, the risk-reward dynamics can make a lot of sense, but it's important to know what you're getting into.
Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Volkswagen Ag. The Motley Fool has a disclosure policy.
