Solid-state battery company QuantumScape (QS) emerged as one of the many players in the green energy landscape that made its public debut in 2020. Like the majority of high-flying startups in that period, QS now trades well below its special purpose acquisition company (SPAC) merger price of $10.
In a typical boom-bust cycle seen in the startup green energy sector, QuantumScape’s valuation, which was once higher than Ford (F), has dwindled to around $3.7 billion.
Although the stock faced a significant decline in the first half of this year, a recent boost in 2024 was witnessed after the announcement of a new partnership with Volkswagen (VWAGY), the company’s primary stakeholder.
Recently, QuantumScape stock experienced a sharp decline following a Q2 financial report showing a wider-than-expected loss. What does the forecast for 2025 hold for QuantumScape, and is it a risk worth taking?
QuantumScape Faces Challenges as a Pre-Revenue Venture
QuantumScape is yet to generate revenue as its battery technology is still in the pre-commercialization phase. The company anticipates an EBITDA loss of $250 million-$300 million in 2024. Despite the setbacks, QuantumScape aims to keep its 2024 capital expenditure on the lower side, within the $70 million to $120 million range.
Similar to many SPAC-merged firms, QuantumScape lags behind the milestones set in its merger presentation.
QS: Pioneering Solid-State Batteries
Batteries are the heart of an electric car, and QuantumScape is at the forefront of developing solid-state batteries that promise improvements over the current lithium-ion technology. These batteries are more energy-dense, safer, offer quicker charging times, longer run per charge, and extended lifespan. If successful, they could revolutionize the electric vehicle industry and find applications in consumer electronics and aviation.
Commercialization Road Ahead for QuantumScape
QuantumScape marked a milestone by shipping its Alpha-2 prototype cells to various customers in the automotive and electronics sectors. The company is also progressing on the QSE-5 cells, with high-volume production scheduled to begin in 2025 using advanced Cobra equipment and processes.
Boost in QuantumScape’s Financial Standing Following Volkswagen Deal
QuantumScape recently inked a licensing agreement with Volkswagen, superseding the previous joint venture to co-produce batteries. This development transformed QuantumScape into a capital-light entity, with Volkswagen’s PowerCo taking over production responsibilities under license. Volkswagen’s prepayment of $130 million in royalties further strengthened QuantumScape’s financial runway, now extended to 2028.
Interestingly, Volkswagen has diversified its bets in the electric vehicle market by investing in other companies like Chinese EV firm Xpeng Motors and U.S.-based startup Rivian since mid-2023.
QuantumScape’s 2025 Stock Projection
Wall Street analysts adopt a cautious stance on QS, with a consensus rating of “Hold.” Among the 9 analysts studying the stock, only one designates it as a “Strong Buy,” while five rate it as a “Hold.” One analyst advocates selling and two suggest a strong sell.
Although QuantumScape trades above the average target price of $6.21, the highest target of $10 represents a 34% upside from current prices.
While acknowledging the potential excitement solid-state batteries could bring to the industry, QuantumScape presents an enticing proposition. Still, the company’s valuation appears lofty, and the risk-reward balance may not merit a leap into the stock.
Management’s ability to deliver, especially in scaling up the QSE-5 prototype production in 2025, will be pivotal. Despite Volkswagen’s deal easing cash constraints and prolonging the financial runway, caution is warranted, particularly amidst the broader market turmoil.