QuantumScape (NYSE:QS) is now well off of its highs, trading around $23.57 per share as of Tuesday, Dec. 14. Back in June, I wrote that QS stock looked overvalued. Then QS went on a nice run through the fall before peaking at $40.58 on Nov, largely due to the bullish comments by management during the Q3 earnings call.
I wrote about Quantumscape’s more bullish outlook on Nov. 10. Management talked about a new OEM (original equipment manufacturer) other than Volkswagen (OTCMKTS:VWAGY) considering ordering QuantumScape’s solid-state batteries.
However, since then QS has been drifting lower as I mentioned above. Interestingly, the means that the stock is starting to look cheap here. In fact, it is not that much higher than its trough price on Aug. 19 of $19.30.
Where Things Stand For Quantumscape Stock
Recently Barron’s magazine wrote that one former bullish analyst on QuantumScape, Adam Jones of Morgan Stanley, had downgraded Q2 stock. He issued a Hold equivalent recommendation, retreating from his previous call to Buy.
But that was on Nov. 16 and a lot has happened since then. Most importantly, QuantumScape stock has fallen from $36.91 at the time, down to just $23.57 as of Dec. 14. That represents a drop of more than one-third (-36.1%) since Nov. 16.
However, Jones’s price target is still very high at $40 per share. In fact, many other analysts still have a high price target for the company.
For example, Seeking Alpha‘s survey of 6 Wall Street analysts repors an average price of $32.33, 37.2% over today’s price. In addition, TipRanks.com reports that 4 analysts who’ve written on the stock in the past 3 months have an average 12-month price target of $35.50. That represents a potential gain of 51.90% from today.
In other words, analysts are still very bullish on QS stock, despite its recent troubles. One reason may be that as time goes on, the company is getting closer to eventually producing actual revenue.
QS Stock Has New Competition
As the Morgan Stanley analyst points out, QuantumScape now faces more competition in its bid to be the premier solid-state battery manufacturer, and at least two of these companies are publicly traded.
For example, a company called SES AI produces hybrid lithium-metal batteries and which it claims are easier to manufacture than QuantumScape’s lithium-metal batteries. SES AI is planning to go public soon via a reverse merger with a special purpose acquisition company (SPAC).
That SPAC is named Ivanhoe Capital Acquisition Corp (NYSE:IVAN), which presently trades for $10.02 per share. Based on its recent slide deck, there will be 330 million shares outstanding.
That implies that its pro forma market cap will be $3.3 billion once it closes the reverse merger and trades on the NYSE. This is comparable with QuantumScape’s market value of $10 billion as of Dec. 14. The deal is expected to close soon and will trade under the ticker SES once the reverse merger closes.
Based in China, the company has two pilot plants, one in Shanghai, and also in Boston. However, it does appear to be closer to producing revenue than QuantumScape. Projections on page 45 of its deck show revenue starting in 2025 at $0.5 billion. However, significant revenue does not begin until 2026 with $3.2 billion.
By contrast, analysts expect QuantumScape to make just $10 million in revenue in 2024 and $34 million in 2025. Their projections for 2026 are just $237 million. This is well below that of SES, assuming its high-flying projections come to pass.
Another Competitor: Solid Power Now Public
A second competitor is Solid Power (NASDAQ:SLDP), which recently went public on Dec. 9 via a SPAC reverse merger. Solid Power has had a pilot plant operation since 2019.
Just like QuantumScape, SLDP has had its batteries tested by auto OEMs as well, including BMW (OTCMKTS:BMWYY) and Ford (NYSE:F), per its side deck presentation. Solid Power now has an estimated market cap of $1.765 billion and 184 million shares outstanding, based on page 39 of its slide deck.
SLDP expects to start producing $10 million in revenue in 2024, $33 million in 2025, and $132 million in 2026. Those numbers start out similar to QuantumScape, although in the long term analysts expect QuantumScape to have higher revenue by the end of the decade.
Where This Leaves QS Stock
This is interesting since QS stock has a market cap of $10 billion but Solid Power is at $1.76 billion in market cap. This implies that QuantumScape could fall further if it does not start producing revenue quicker than analysts expect it to now.
On the other hand, perhaps SLDP stock is seriously undervalued. However, I suspect it is more likely to be the former, although thee two companies will likely converge in the middle when it comes to valuation. Either way, this seems to imply that QS stock is likely to be good value at current prices, especially if it can start producing revenue early than projected.
On the date of publication, Mark Hake did not hold (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.
Mark Hake writes about personal finance at mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide which you can review here.