QuantumScape Is Risky But Its Disruptive Potential Cannot Be Denied

QuantumScape (NYSE:QS) stock slid over 37.7% in the past three months. Given the challenging macro-economic outlook, investors have shied away from high-risk stocks. Consequently, QS stock trades over 77.2% lower than its 52-week high price of $65.42.

A hand holds a phone and the screen shows the QuantumScape logo
Source: rafapress / Shutterstock

QuantumScape is coming off a solid year of progress, which should’ve translated into share price gains. The company reported multiple promising test results and key partnerships, which widen its bull case. Moreover, it also talked about having signed multiple customer agreements, which represent roughly 15% of global automotive revenues in 2020.

2022 is likely to be another interesting year for the company as it inches closer to commercialization. It believes it will enter 2023 with a whopping $800 million in liquidity to take things up a notch as far as production goes. Investing in QS stock is not without its risks, but there’s still plenty to suggest that it will commercialize the holy grail of EV batteries.

Progressing Along Nicely

The main challenges for the wide-scale adoption of EVs include their slow charging time, stability, energy density, and high costs. Solid-state batteries can potentially provide a long-term solution to these issues. They tend to be more thermally stable and charge at least ten times faster than lithium-ion batteries.

QuantumScape is arguably the best bet on the commercialization of solid-state battery technology. It released an encouraging test result which showed its batteries could be charged 80% for the first 400 cycles within 15 minutes. Additionally, the batteries effectively retained their capacity well over 80% after 400 cycles. In October, the company released results that showed its batteries’ ability to operate under reasonable conditions and at 800 cycles.

It’s now in the process of building its facility to schedule a ramp-up in production this year. Pre-pilot production is likely to commence next year and it expects to deliver cells with multiple layers sometime this year. The final cell format may also be released this year, along with the first prototype. However, commercialization will probably begin in 2024 or 2025.

The Fluence Energy Deal

QuantumScape’s Fluence Energy deal is a welcome addition to the company’s portfolio. Many had criticized it for a one-trick pony. Its combination with QuantumScape is a win-win for both companies in diversifying their business and adding new revenue streams.

Fluence provides energy storage technology and services to its clients. It’s a global leader in its niche and has over 150 projects across the globe. Solid-state batteries offer high energy density, offering plenty to the energy storage business. Hence, Fluence can effectively combine QuantumScape’s solid-state battery technology with its storage products to provide a robust solution. The battery storage market is a lucrative niche, expected to grow at an incredible 16.5% to $26.81 billion from 2021 to 2028. Hence, QuantumScape is looking at a multi-million dollar opportunity down the road.

I don’t expect the company to stop with its diversification efforts. It already has partnerships with some of the most powerful entities. Moreover, it has over $1.5 billion in its balance sheet, which is likely to be in use for the expansion of its portfolio.

Bottomline On QS Stock

QuantumScape is a company with massive potential for growth. Its technology is cutting edge, and its progress has been exciting to watch so far. If it can commercialize its technology, it can provide massive returns down the line. It’s been making impressive progress based on its test results and collaborations with some of its key partners. Solid-state battery technology is untested which makes QS stock relatively risky. However, it has all the makings of becoming a highly promising investment over the long term.

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

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.


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