It’s been an interesting year for QuantumScape (NYSE:QS) stock.
The promising EV battery maker met all its milestones for 2021 and is moving ever so close towards commercializing its solid-state batteries. However, the competition is now heating up in the niche, which may become a bone of contention for investors. Nevertheless, the company’s superior technology and the sheer size of the EV market widens QS stock’s long-term bull case.
QS stock has been butchered at the stock market in the past year. The stock is down more than 70% in 2021 despite killing it from a business standpoint. The market is skeptical of the company’s ability to achieve the holy grail of EV batteries. Nevertheless, it offers an attractive entry point for long-term investors with the stock beaten down.
Though it comes with its risks, QS stock has the potential to generate sizeable gains down the line.
A Breakthrough Year
QuantumScape’s 2021 performance was an emphatic response to its naysayers. It successfully achieved all its milestones and now has its sights set for the commercial launch of its batteries in three years.
Its recent tests include its 10-layer battery cell, which has captured the imaginations of the industry experts and put its competitors on notice. Its 10-layer cell exhibited an incredible 80%+ energy retention at 25 degrees Celsius after completing 800 cycles. According to QuantumScape’s management, “no other player has demonstrated equivalent performance with solid-state or lithium-metal battery technology.”
Moreover, the company expects to close out the year with liquidity of $1.3 billion. This is an impressive feat considering its 2021 cash burn rate is over $250 million. Additionally, the company is free from debt.
QuantumScape is projected to report meaningful revenues by 2026 and achieve EBIT profitability the following year. If it stays on course, the potential rewards could be massive for its technology.
Rising Competition
QuantumScape’s solid progress so far has had many of us turning a blind eye towards the rising competition in the sector. Several other companies are looking to stake a claim in the emerging solid-state battery niche.
Furthermore, you have China breathing down QuantumScape’s proverbial neck. China is the leading player in the EV sector and continues to grow quickly. Moreover, it accounted for roughly 50% of EV demand this year.
The country’s top players in the EV battery space specialize in producing lithium iron phosphate (LFP) batteries. Several experts had predicted LFP batteries become obsolete. However, they are now significantly cheaper and safer to produce than before. On top of that, some of the biggest battery producers in China are market leaders in LFP batteries.
QuantumScape has been lucky to partner with Volkswagen (OTCMKTS:VWAGY) as a key investor and a ready buyer in its pre-revenue stage. However, another entrant in Solid Power (NASDAQ:SLDP) has been making the rounds of late. It recently went public with an implied market valuation of over $1 billion.
It appears to have the funds necessary to execute its plans and has the backing of automotive giants such as BMW (OTCMKTS:BMWYY) and Ford (NYSE:F). Moreover, it will begin pilot production of its 100-amp battery cells during the first half of 2022. Furthermore, you also have Toyota (NYSE:TM) with over 1,000 patents for its solid-state batteries. It plans to have these batteries powering its cars by 2025.
Final Word On QS Stock
QuantumScape is locked in the race to develop its solid-state battery technology. So far, it has exceeded expectations and has shown that it could become a major player in the sector. It faces stiff competition, but the EV sector is big enough to accommodate several players. Additionally, its superior technology will likely give it the edge over its competition.
Hence, QS stock is a buy for the long haul.
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.
