Electric vehicles (EVs) aim to transform transportation. But like any breakthrough technology, EV batteries still have hurdles to overcome before EVs become widely adopted. Some common criticisms of electric cars relate to their long charging times and shorter driving range compared to gasoline-powered vehicles.
That’s true QuantumScape(NYSE:QS) comes in. The company is committed to developing batteries that overcome the obstacles faced by current lithium-ion batteries and make electric vehicles more attractive to consumers. Earlier this year, QuantumScape made headlines with excellent results during an endurance test of its battery. The company has also secured financing to expand its runway and recently reached a major milestone with the shipment of its sample B cells for further testing.
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QuantumScape is making progress, but the stock is 96% below its peak price four years ago and near an all-time low. While the low price may make it seem attractive, there are some things you should know if you’re considering picking up the stock today.
QuantumScape aims to revolutionize battery technology and address several barriers that have hindered the widespread adoption of electric vehicles. The advanced solid-state lithium metal batteries promise to make significant advances in several key areas: increased energy density, faster charging times and superior safety measures compared to traditional battery systems.
The company had entered into a strategic partnership with Volkswagen. Earlier this year, Volkswagen’s battery division, PowerCo, tested QuantumScape’s solid-state batteries and reported great results, achieving 1,000 charging cycles, with the battery cells showing minimal signs of wear. This indicates that an electric vehicle equipped with their technology can potentially travel more than 500,000 kilometers without experiencing a noticeable decrease in range.
Image source: Getty Images.
Last month, shares of QuantumScape soared higher after it announced it would produce and ship low volumes of its B-sample cells. The company says this was its main target for 2024 and began shipping these cells to its automotive customers for extensive testing.
These tests by car manufacturers will take months. This is part of a three-step process involving A, B and C prototype cells undergoing internal and customer testing before commercial production of the product, QSE-5. Ultimately, the company wants to confirm that its technology allows electric cars to travel further, charge faster and operate more safely than the electric cars currently on the market.
QuantumScape’s battery technology is coming, but the company is monetizing and continuing to burn cash in the meantime. Through the first nine months of this year, QuantumScape has an operating loss of $397 million, compared to last year’s operating loss of $354 million during the same period.
QS Cash from Operations (Quarterly) data by YCharts
To boost cash flow, QuantumScape agreed to grant PowerCo the license to mass-produce battery cells based on QuantumScape’s technology. Under the license, PowerCo can produce up to 40 gigawatt hours (GWh) per year, with the option to double this production to 80 GWh. This would be enough to power approximately 1 million vehicles per year.
QuantumScape’s agreement with PowerCo extends QuantumScape’s cash runway by 18 months through 2028, thanks to an upfront payment of $130 million in royalties from PowerCo. It also allows the company to take a low-capital approach and reach gigawatt-hour scale more quickly under the prior agreement.
However, QuantumScape continues to burn money today and several steps need to happen before the batteries can be produced and commercialized on a large scale. Not only that, but according to the four analysts who follow the company, QuantumScape won’t generate positive net income until 2029. In the meantime, the stock price will be determined by progress with the B samples and further prototype development.
For these reasons, investing in the emerging battery technology company is highly speculative and risky, and most investors are best off watching this company from the sidelines for now.
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Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.
Should You Buy QuantumScape While It’s Under $7.50? was originally published by The Motley Fool