Is QuantumScape Stock a Buy?

QuantumScape (QS -4.77%)a developer of lithium-metal solid-state batteries, released its third-quarter report on October 23. It did not generate any income, as it had not yet marketed its products. Its net loss increased annually from $111 million to $120 million, or $0.23 per share, which matched Wall Street expectations.

Those numbers aren’t surprising, but QuantumScape also said it finally “started producing” the first test samples of its QSE-5 batteries during the quarter. It also said it had “started shipping” those test cells to its automotive customers.

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These solid-state batteries have an energy density of more than 800 Wh/L (watt-hours per liter) compared to an average density of 300 Wh/L to 700 Wh/L for traditional lithium-ion batteries, and the ability to be loaded quickly. from 10% to 80% in less than 15 minutes. The bulls expect that QuantumScape will increase its production of these batteries to disrupt the lithium-ion market and improve the charging capacity, range and safety of electric vehicles (EVs).

QuantumScape stock climbed higher after that encouraging business update, but remains more than 95% below its all-time high since December 2020. You should invest in this speculative company before it succeeds Does your business scale?

Why did the bulls leave QuantumScape?

QuantumScape’s lithium-metal batteries generate electricity with solid electrolytes, which are denser, more stable, store more energy and charge faster than the liquid electrolytes used in lithium-ion batteries. Smaller solid-state batteries are already used in smaller devices such as wearables and pacemakers, but they have not been mass-produced for EVs because they are much more expensive than lithium-ion cells.

QuantumScape went public by merging with a special purpose acquisition company (SPAC) nearly four years ago. At the time, it said it could generate $14 million in revenue by 2024 as it commercializes its first solid-state batteries, and then grow its revenue at a compound annual growth rate (CAGR) of 363%. to $6.44 billion by 2028.

Those bold claims raise a lot of eyebrows, but Volkswagen (OTC: VWAP.Y) was already a major investor and had co-developed these batteries with the company for more than a decade. Volkswagen has also established a new group, PowerCo, to test and industrialize QuantumScape batteries in 2022.

Volkswagen’s backing suggested QuantumScape had far more staying power than many other SPAC-backed start-ups. But it is still not close to the commercialization of its first batteries this year. It also faces more competition from other start-ups, such as Blue Solutions and automakers like Toyota (NYSE: TM) and No (NYSE: NIO) in the solid state battery race.

As QuantumScape struggled with its production delays, the EV market cooled, and rising interest rates highlighted its persistent losses, compressed its valuations, and drove investors away from speculative companies pre- income

Is QuantumScape finally ready to increase its production?

For now, QuantumScape will focus on shipping low-volume test samples of the QSE-5 cells to its automotive customers. He says that this phase B sample will “take several months to complete” and that it must also “substantially improve in metrics such as cell reliability, performance and equipment productivity” before increasing its production. It also needs the transition to the advanced Cobra separator process, which will succeed its current Raptor separator process, to increase its production volumes. It is trying to achieve this transition by 2025, which means that it will not generate significant revenue until 2026.

By 2025, analysts expect QuantumScape to generate just $5 million in revenue with a net loss of $461 million. But by 2026, they expect their revenue to more than double to $12 million with a slightly narrower net loss of $459 million. It is assumed that he can successfully complete his tests and increase his income.

QuantumScape is streamlining its expenses, and received some fresh cash by forming a new joint venture with PowerCo in July. It says these moves will extend its cash flow until 2028 and give it enough time to spin up its business.

But QuantumScape has also increased its number of shares outstanding by 45% since it closed its SPAC merger, and the company could issue even more shares to raise fresh cash and cover its stock-based compensation. Its insiders have also sold almost 20 times more than the shares they bought in the last three months.

QuantumScape is still too speculative for my tastes

With an enterprise value of $2.1 billion, QuantumScape is already valued at 174 times its projected revenue for 2026. Any further production delays could drive that ratio even higher as analysts temper their expectations . It achieved a milestone by delivering its first QSE-5 samples this year, but has yet to prove that its business model is sustainable. Therefore, I have always avoided this speculative stock until it actually shows some more progress towards commercializing its first batteries.