QuantumScape Stock’s Risk-Reward Ratio Is Becoming Attractive

The shares of aspiring electric vehicle battery maker QuantumScape (NYSE:QS) have nosedived in value this year. QS stock has tumbled a massive 74%since the beginning of the year. However, the stock appears to be picking up again, climbing nearly 5% in the last five trading days.

A sign for QuantumScape (QS).

Source: Michael Vi / Shutterstock.com

QuantumScape continues to achieve its targets ahead of schedule, giving investors confidence in its growth outlook.  It remains a high-risk, high-reward play, but can achieve the “Holy Grail” of the battery industry.

An Attractive Entry Point

The company has already made some critical breakthroughs in solid-state battery technology. And QS stock has finally broken through its resistance and is likely to move in a more positive direction.

Analysts’ average estimates for the stock suggest that it is trading at a roughly 70% discount to its actual value. Therefore, QS stock has reached an attractive entry point for investors who feel confident in the company’s long-haul prospects. In the past few months, it has certainly given investors many reasons  to feel confident in its long-term outlook.

Recent Positive Developments

In  conjunction with its second-quarter results, QuantumScape shed light on the progress that it had been making in manufacturing. Its management talked about how the company’s ceramic material can be used as a solid-state separator, overcoming the challenges presented by battery cells.

Earlier in the year, QuantumScape had successfully built its first four-layer battery cell. It recently announced the successful production of its first 10-layer battery cells, which it is now testing. Consequently, it is moving closer to producing a commercially viable product.

Previously, the firm’s goal was to start testing its multilayer battery cell by the conclusion of this year, but the company achieved that target ahead of schedule. Moreover, its management updated investors on the development progress of its pre-pilot manufacturing facility.  QuantumScape believes that the factory “will help {the company} meet demand for test cells from prospective customers.”

The firm signed a long-term lease on the 197,000 square-foot facility a few months ago and increased its employee count to over 400.

Volkswagen’s Support

QuantumScape has a decisive edge thanks to its alliance with Volkswagen (OTCMKTS:VWAGY), which could take QuantumScape past the finish line. Volkswagen is QuantumScape’s main client and plans to produce 3 million EVs every year until 2025.

Additionally, Volkswagen has  invested more in EV programs than most other automakers.  So if QuantumScape can achieve its goals, the German automotive giant will likely become a lucrative long-term client for it.

QuantumScape has a relatively strong liquidity position, with $1.5 billion of cash as of the end of Q2. It expects to enter 2022 with $1.3 billion of cash. It should have enough liquidity  to fund its manufacturing facility.

Creating a key risk, the company, which has a market capitalization of over $9 billion, does not expect to generate  any revenue until 2024. Moreover, it plans to spend close to $300 million this year. At that rate, it might need to take on more debt. However, with Volkswagen having its back, liquidity shouldn’t be much of an issue for it.

The Bottom Line on QS Stock

QuantumScape is on a mission to commercialize its solid-state battery technology and transform the EV sector forever. It continues to deliver on its promises and has the backing of the world’s largest automobile manufacturer, Volkswagen.

The battery maker also has enough funds to execute its plans until next year. If it continues to deliver on its objectives, it will have the support of Volkswagen, which plans to stay in the EV market over the long haul. So if you can stomach the risk posed by its shares, QuantumScape constitutes an exciting investment in the EV realm that could be very profitable down the road.

On the date of publication, Muslim Farooque 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/2021/09/qs-stock-the-risk-reward-ratio-is-getting-attractive/.

©2023 InvestorPlace Media, LLC