QuantumScape Remains a Speculative Bet Far From Commercialization

There is a reasonable bull thesis around QuantumScape (NYSE:QS) stock at current prices. An investment is undoubtedly speculative in nature and very clearly for the risk-tolerant investor. But that is the nature of any unproven technology including the solid-state lithium metal EV batteries the company is developing. 

A sign for QuantumScape (QS).
Source: Michael Vi / Shutterstock.com

The risk too, is obvious. But so too is the reward should QuantumScape be successful in commercializing such a battery. I think it would be fair to characterize QS stock as being one that remains what it has been: A speculative bet. 

It’s going to take a long time for the truth to be revealed as the company doesn’t anticipate significant sales for years. Those sales of course may never even materialize. So, investors and other believers will be playing a game of watching and analyzing developmental milestones for years to come. 

Where Could QuantumScape Go?

The potential of QuantumScape is massive. Its potential is the promise of solid-state batteries within the electric vehicle industry. That is, greater range, a better safety profile, and quicker charging times. 

A Bloomberg article that QuantumScape posted on its website back in April clarified what solid-state batteries could mean for the EV industry. EV ranges could be increased by 50% and charging times could be slashed to 15 minutes. 

That would mean that the median EV range of 250 miles in 2020 would be extended to roughly 375 miles. We can safely assume that the 250-mile median range is increasing, but not very quickly.  By comparison, the median range of gas powered vehicles in 20216 was 412 miles, according to the Department of Energy. 

Today’s lithium ion EV batteries rely on flammable liquid electrolytes. Solid-state batteries lack a flammable liquid electrolyte and are more robust against accidental damage that can ignite a fire. 

For many electric vehicles it is currently possible to add 100 miles of charge with a 50kW rapid charger. Here too, solid state batteries, like that which QuantumScape is developing, have a massive advantage. Expectations are that it will take 15 minutes to fully charge a solid state EV battery. So QuantumScape could truly be a quantum leap forward based on those specifications.

Then again, QuantumScape may never produce a commercially viable solid-state EV battery. Or perhaps another fledgling company will leap ahead of QuantumScape. There are multiple scenarios in which QS stock falters, even in the long term.

But if QuantumScape is successful, what kind of sales can investors expect?

Future Guesses for QS Stock

According to JPMorgan analyst Jose Asumendi, QuantumScape could have $6.4 billion in annual sales by 2028. He recently gave QS stock a $35 target price based on a series of discounts which factor in time and the truth that QuantumScape is pre-commercialization. 

That broader group of analysts of which Asumendi is a part gives QS shares an average price of $40. It’s a small group of six analysts with a high that ranges to $70. 

QS stock currently trades around $23. That would lead most investors to simply assume that QuantumScape is an obvious buy. The logic being to simply buy and hold while relying on Wall Street’s prognostications. 

And that’s fine. QuantumScape aims to be at the stage of commercial viability by 2024. 

But others could get there first. Toyota (NYSE:TM) has long been developing solid-state battery technology. It would hardly surprise the automotive industry if it reaches commercialization first. 

My colleague David Moadel points out that QuantumScape:is set to have a formidable competitor. It’s another startup that has the backing of Ford (NYSE:F).

Just as QS stock was birthed from a special purpose acquisition company (SPAC) merger, rival solid-state battery maker Solid Power plans to go public through a merger with a SPAC known as Decarbonization Plus Acquisition III (NASDAQ:DCRC).”

So, although the bull thesis is clear for QuantumScape, the investment time horizon is long. Clearly another competitor could swoop in and gain a first-mover advantage during that time.

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Article printed from InvestorPlace Media, https://investorplace.com/2021/07/quantumscape-remains-a-speculative-bet-far-from-commercialization/.

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