The solid-state battery maker is a speculative but promising investment.
QuantumScape (QS 2.04%) stock has disappointed a lot of investors since its public debut on Nov. 27, 2020. The developer of solid-state batteries went public by merging with a special purpose acquisition company (SPAC), and its stock started trading at $24.80 before skyrocketing more than fivefold to its all-time high of $131.67 less than a month later.
But today, QuantumScape trades at less than $10. The bulls lost their patience for three reasons: The company wasn't generating any revenue yet, it was still deeply unprofitable, and the electric vehicle (EV) market was cooling off. Rising interest rates also broadly drove investors away from speculative pre-revenue companies.
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QuantumScape's stock should remain volatile until it actually commercializes its batteries and generates stable revenue. But could it stabilize and revisit its all-time high over the next five years? Let's review its roadmap to find out.
QuantumScape wants to disrupt the lithium-ion battery market
QuantumScape's solid-state batteries run on solid electrolytes, which are less volatile, more resistant to higher temperatures, charge faster, and last longer than the liquid electrolytes used in lithium-ion batteries. Solid-state batteries are already used in pacemakers, wearable devices, and small radio-frequency identification (RFID) products, but they haven't been mass-produced for mobile devices and EVs because they're generally pricier and harder to mass produce than lithium-ion batteries.
Nevertheless, QuantumScape aims to commercialize solid-state batteries for EVs over the next few years to address the growth and evolution of the EV market. Volkswagen has a lot of faith in QuantumScape's plans -- it became the company's top investor and manufacturing partner more than a decade ago.
QuantumScape is currently developing a solid-state battery for EVs with a range of 400-500 miles and a charge time of less than 15 minutes. Its newest design could expand that range to 600 miles with a charge time of less than 30 minutes.
QuantumScape's technology sounds like a game-changer for the EV market, but it already faces a lot of competition. Toyota plans to start mass producing its own solid-state batteries by 2028, China's Nio has been testing out its own battery which has a range of more than 600 miles, and scientists in South Korea aim to replace lithium-ion batteries with hydrogen-powered "aqueous rechargeable" batteries.
QuantumScape has high hopes for 2028
During its pre-merger presentation, QuantumScape claimed it would start commercializing its batteries in 2024 and ramp up its production through 2028. It predicted its revenue would rise from $14 million in 2024 to $6.44 billion in 2028 -- which would represent a stunning compound annual growth rate (CAGR) of 363%.
QuantumScape plans to start shipping its first low-volume samples in 2024 and high-volume samples in 2025, but it hasn't provided any updated revenue forecasts.
Yet the company's mass production plans still seem to be on track. Volkswagen's battery unit PowerCo recently completed its first endurance test for QuantumScape's solid-state battery, and found that it "achieved more than 1,000 charging cycles with still more than 95 percent capacity" -- so an EV could potentially drive over 310,000 miles "without any noticeable loss of range." By comparison, lithium-ion batteries tend to lose 10% of their range after 200,000 miles.
According to Precedence Research, the global solid-state battery market could grow at a CAGR of 38% from 2023 to 2028. The firm expects that growth to be driven by the increased adoption of those batteries across consumer electronics, industrial machinery, Internet of Things (IoT), wearables, and EV markets.
But a lot of optimism is baked into QuantumScape's valuations
QuantumScape's stock has plummeted more than 90% from its all-time high, but it still has an enterprise value of $2.2 billion. That's a nosebleed valuation for a company that hasn't generated any meaningful revenue yet.
For now, analysts expect the company to generate just $2 million in revenue in 2024 and $15 million in revenue in 2025 -- so it might be falling at least a year behind its optimistic pre-merger targets. Based on those estimates, it's already valued at nearly 150 times its 2025 sales -- so it could still have a lot of downside potential if it fails to ramp up its production.
On the bright side, QuantumScape's insiders bought more shares than they sold over the past 12 months. Volkswagen's firm commitment to the company also suggests it has a good shot at commercializing its solid-state batteries.
Where will QuantumScape's stock be in five years?
QuantumScape still has a lot to prove, and its stock could easily be cut in half before it doubles. But over the next five years, it could rise a lot higher if it starts mass-producing its solid-state batteries. It could also become a lucrative takeover target for Volkswagen as it expands its EV business. However, investors who can't afford to buy and hold the stock for at least the next five years should steer clear -- since it could be an extremely bumpy ride before its business finally stabilizes.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nio and Volkswagen Ag. The Motley Fool has a disclosure policy.
