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QuantumScape Stock Still High-Risk Against Tough Rivals, High Valuation

With QuantumScape (NYSE:QS) still trading at a rather high valuation and continuing to face many potent risks, QS stock still  looks unappealing.

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

Indeed, in-line with my previous expectations, its competitive risks appear to have greatly increased in 2021, even though, as InvestorPlace contributor Muslim Farooque pointed out recently, it has been making significant strides.

QS stock has tumbled nearly 75% in 2021, including almost 23% in the last three months. Yet its market capitalization still exceeds $9 billion.

To give that number some perspective, it’s close to one-sixth as much as global automaker Stellantis (NYSE:STLA) that generated 2020 revenue of nearly 87 billion EUR ($103 billion) and operating income of 2.2 billion EUR. And it’s one-fifth as much as Ferrari (NYSE:RACE), whose 2020 revenue and operating income were $3.46 billion EUR and nearly 730 million EUR, respectively.

And finally, QuantumScape’s market capitalization is less than 10% less than that of First Solar (NASDAQ:FSLR), one of the world’s leading solar energy companies, whose 2020 top line and OI were $2.7 billion and $323.5 million, respectively.

Conversely, QuantumScape expects to have absolutely no revenue until 2024 and, as you’ll see shortly, is facing a tremendous amount of competition.

QuantumScape’s Surging Competition

Many major automakers with huge pockets, are, like QuantumScape developing solid-state batteries, which are expected to be safer and lighter, charge faster and have greater range than today’s electric-vehicle batteries.

Toyota (NYSE:TM) is working on solid-state batteries and aims to utilize them “by the first half of the 2020s.” A Nikkei report was more upbeat, saying that the auto giant would start selling EVs equipped with solid-state batteries “in the early 2020s.”

Ford (NYSE:F) and Hyundai have invested in a solid-state-battery startup called Solid Power that’s aiming for commercialization “around 2026.”

Not to be left behind, Tesla is working on “ a more energy-dense cell that could reduce costs by 50%,” elektrek recently reported. Elon Musk’s automaker stated in July that it was “nearing the end of manufacturing validation” of the new battery and is working “on improving the 10% of manufacturing processes that currently bottleneck production output.” The company hopes to produce a significant amount of the batteries, called 4680, “by 2023.”

And there’s a great possibility that any or all of these battery makers could sell their products to their competitors or the competitors of their investors, including QuantumScape’s partner, Volkswagen (OTC:VWAGY).

In the smartphone market, Samsung has thrived on both selling its own devices and selling components to its arch rival, Apple (NASDAQ:AAPL). And Chinese conglomerate BYD (OTC:BYDDF) sells both EVs and batteries to other EV makers. And, as I’ve pointed out in the past, Volkswagen’s investment in QuantumScape is not large enough to preclude the German automaker from leaving QuantumScape on the side of the road and buying batteries from its competitors instead.

Israeli Super-Startup Just Keeps Plugging

Meanwhile, as I’ve written about in multiple past columns on QuantumScape, Israeli startup StoreDot has developed prototype batteries that charge very quickly and has obtained investments from a number of huge companies, including BP (NYSE:BP), Daimler (OTC:DDAIF) and Samsung.

StoreDot seems to be continuing to make progress on its battery technology. The company recently announced that it has created a prototype of “the world’s first 4680 cylindrical cell… which can be fully charged in 10 minutes,” InsideEVs reported. StoreDot says that its “cell design increases throughput and addresses safety and performance issues typically associated with the hard case structure of cylindrical cells.”

The startup expects to be able to manufacture the batteries “at scale by 2024.”

Bottom Line on QS Stock

Given the array of deep-pocketed competition in the high-tech EV battery market, QuantumScape could easily fall behind technologically to one or more of its competitors, causing its sales to be much lower than expected or nonexistent.

So, even though QuantumScape is making some technological process, QS stock is a gamble at this point, especially considering its elevated valuation. Consequently, I continue to urge investors to sell the shares.

On the date of publication, Larry Ramer 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.

Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer. 


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