The EV Revolution arrived on Wall Street with a bang in 2020. All EV stocks — from the Tesla (NASDAQ:TSLA) mothership down — soared. One of the biggest winners was solid-state EV battery maker QuantumScape (NYSE:QS). QS stock, once a $10 stock in late 2020, soared as high as $130 just before Christmas 2020.
Then the jolly vibes left. Short-sellers and bears took over, calling QuantumScape an overvalued stock with a growth narrative that is still years away from materializing.
QS stock plunged; dropping from $130 pre-Christmas to sub-$50 today.
Now, it’s time to buy the dip.
To put it simply, the short-sellers and bears here are wrong. QuantumScape is a revolutionary company breaking round on a new generation of solid-state batteries, which represent the future of EV batteries. And one day, QuantumScape’s batteries will be used in most electric vehicles across the globe.
This is a $100-plus billion company in the making — and QS stock will soon bounce back to $100.
So buy the dip now before the big rebound.
Here’s a deeper look:
QS Stock: The Disruptive Shift to Solid-State Batteries
Traditionally, we think of batteries as the technology which makes things work. But today’s batteries are actually keeping things from working as well as they could.
Sure, that seems counter-intuitive, so let’s take a quick trip back to chemistry class.
Batteries comprise three things. A cathode, an anode and an electrolyte. Batteries work by promoting the flow of ions between the cathode and anode through the electrolyte.
Conventional lithium-ion batteries – which are currently the dominant status quo in smartphones, smartwatches, electric cars, so on and so forth – are built on liquid battery chemistry. That is, they comprise a solid cathode and anode, with a liquid electrolyte solution connecting the two.
These batteries have worked wonders for years. But, due to the physical constraints of dealing with a liquid electrolyte, they are now reaching their limit in terms of energy cell density – which basically means that if we want our phones, watches, and electric cars to last longer and charge faster, we need a fundamentally different battery.
Insert the solid-state battery.
With solid-state batteries, the name pretty much says it all. You take the liquid electrolyte solution in conventional batteries. Compress it into a solid. Create a small, hyper-compact solid battery that – because it has zero wasted space – lasts far longer and charges far faster.
Of course, the implications of solid-state battery chemistry are huge.
Solid-state batteries could be the key to making our phones sustain power for days, enabling our smartwatches to fully charge in seconds and allowing electric cars to drive for thousands of miles without needing to recharge.
But making solid-state batteries is a complex and costly science – and no one has figured out how to affordably or sustainably do it.
QuantumScape is Pioneering the Future of Batteries
QuantumScape is such an exciting company — and QS stock is such an exciting investment opportunity — because this is an emerging battery tech company that is leveraging its novel and breakthrough technology to turn the promising theory of solid-state batteries, into an explosive reality.
Specifically, adoption of solid-state batteries has been essentially non-existent to-date — despite their theoretical superiority — for two big reasons: they are exceptionally expensive to make, and they tend to short-circuit because of something called “dendrites” which form in the solid electrolyte substance over time.
QuantumScape’s technology has addressed both of these shortcomings.
The company has employed an anode-less battery cell design which eliminates anode manufacturing costs, and brings QuantumScape’s all-in battery costs to 17% lower than all-in costs for traditional lithium-ion batteries. The company has also developed a streamlined process for sourcing its materials which should allow for scalable and cost-effective battery manufacturing.
Meanwhile, the company’s proprietary design includes a ceramic electrolyte with high dendritic resistance – and therefore, QuantumScape’s batteries don’t have dendrite problems.
Thus, by addressing the two largest short-comings of solid-state battery chemistry, QuantumScape has positioned itself to create a new class of EV batteries which are cheaper, last longer, charge faster and are just overall a better solution than the Lithium-ion status quo.
Confirmation of Technology Lead
In December 2020, QuantumScape released performance data for its solid-state battery technology which broadly underscored that these batteries are a complete game-changer.
The data, based on testing of single layer battery cells, shows that QuantumScape’s batteries:
- Charge very quickly — you can recharge them up to 80% capacity in just 15 minutes.
- Last forever — these batteries are capable of lasting hundreds of thousands of miles.
- Work in any condition — the batteries worked even in a test at -30 degrees Celsius.
Those are total game-changing features in the EV battery world. If you don’t believe me, then maybe you’ll trust the word of Dr. Stan Whittingham, co-inventor of the lithium-ion battery and winner of the 2019 Nobel prize in chemistry, who said: “If QuantumScape can get this technology into mass production, it holds the potential to transform the industry.”
Need I say more?
That’s why, despite recent weakness in QS stock, I’m very bullish on QuantumScape’s growth opportunity over the next decade.
Clear Visibility to Maintaining Tech Lead
You don’t really need another reason why I’m so bullish on QS stock long-term, but here it is: The company has ample talent, resources, and partnerships to ensure that it remains the unrivaled leader in solid-state battery technology.
The management team – headed by the former founder of Infinera and a Stanford grad – is essentially a handpicked team of the best-of-the-best of Stanford and Berkeley physics grads. Indeed, the company’s Chief Scientific Officer is the Chair of Mechanical Engineering at Stanford.
Meanwhile, Volkswagen – the world’s largest auto maker who is committed to electrifying its vehicle portfolio – has poured $100 million into QuantumScape and is committed to using the company’s solid-state batteries in its cars by 2025. And the company’s list of early investors includes Bill Gates. Yes. That Bill Gates.
At the same time, through a recent SPAC deal, QuantumScape will receive more than $1 billion in cash and funding commitments. Volkswagen also has a lot of cash to throw at the company. So does Bill Gates. Broadly, then, QuantumScape has sufficient resources to not worry about cash burn today and instead focus on the company’s long-term goal of becoming a ubiquitous, best-in-breed supplier of solid-state batteries into the EV industry.
All in all, from head-to-toe, QuantumScape is a good as it gets when it comes solid-state battery companies. And, to that extent, QS stock is the best way to play the solid-state battery disruption in EVs.
QuantumScape Stock Back to $100?
If management does execute on that ambitious goal, the potential upside for QS stock is enormous.
QuantumScape plans to sell its batteries in 100 KWh packs, for about $7,000 per pack, and at about 30% gross margins.
Roughly 60 million new passenger cars will be sold this year. Thanks to population growth and urbanization, that number will grow to 75 million by 2030. Let’s say EVs – which comprise less than 5% of total new car sales today – rise to 35% penetration. Let’s also say about one-fifth of those EVs feature solid-state batteries, and that QuantumScape leverages superior tech to control about half of the solid-state auto battery market.
The math there implies $18+ billion in revenues for QuantumScape by 2030, with gross profits of $5.5-plus billion. My numbers suggest that could flow into $4 billion in net profits.
Based on a 25X multiple, that implies a potential future valuation for the company of $100 billion. The current market cap is below $20 billion.
Thus, QS stock can and will rebound above $100 soon.
Bottom Line on QS Stock
Solid-state batteries are the future. Whoever pioneers this future will inevitably turn into a giant company.
Based the current market landscape, QuantumScape presently has a better opportunity than anyone else to pioneer this future. Accordingly, QS stock should be looked at as a long-term winner, and recent weakness should be looked as a solid buying opportunity.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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