With a $4.57 billion market cap, QuantumScape Corporation (QS), a research and development stage business, engages in the development and commercialization of solid-state lithium-metal batteries for use in electric vehicles (EVs) and other applications.
As the demand for EVs is increasing considerably globally, so is the need for lithium batteries. The global EV battery market is projected to reach $508.8 billion by 2033, growing at a 14.4% CAGR. One of the key reasons driving the global adoption of EVs is the government’s increasing emphasis on electrification to combat climate change and reduce reliance on fossil fuels.
However, the EV battery market is highly competitive, with new technological advancements by rivals, such as Enovix Corporation (ENVX), Sila Nanotechnologies, and Electrovaya Inc., which may overshadow QuantumScape’s progress.
On July 11, QS announced a groundbreaking agreement to industrialize QuantumScape’s next-generation solid-state lithium-metal battery technology with Volkswagen Group’s battery company PowerCo. QS will grant PowerCo the license to mass-produce battery cells based on its technology platform upon satisfactory technical progress and certain royalty payments.
“Combining our cutting-edge technology with PowerCo’s expertise in manufacturing and industrialization, this deal establishes a blueprint for a capital-light business approach and positions us at the forefront of energy storage innovation. Working closely with PowerCo as our first customer will help us accelerate commercialization and adoption of these game-changing batteries together,” said Siva Sivaram, CEO and president of QS.
In 2022, QS demonstrated the capabilities of its solid-state electrolyte-separator and battery technology in single-layer and multilayer cell cycling data and shipped its first 24-layer A0 prototype battery cells to various automotive OEMs for testing. Since then, the company continued to advance its R&D efforts on subsequent generations of prototype samples.
Last year, the company launched its first targeted commercial product, the QSE-5, a cell with an approximate capacity of 5 amp-hours.
While QS’ next-generation battery technology for EVs has robust potential, the company has generated no revenue to date as it has yet to commercialize its product. This pre-revenue company incurred an accumulated deficit of approximately $3 billion from its inception in 2010 through March 31, 2024.
Shares of QS have plunged 13.1% over the past year to close the last trading session at $8.92.
Here are some factors that could influence QS’ performance in the upcoming months:
Bleak Financials
For the first quarter that ended March 31, 2024, QS’ loss from operations widened 19.9% year-over-year to $131.90 million. The company’s net loss attributable to common stockholders worsened by 15.3% over the prior-year quarter to $120.65 million, and its net loss per share was $0.24.
Also, as of March 31, 2024, the company’s total liabilities increased to $204.32 million, compared to $161.80 million as of December 31, 2023.
Unfavorable Analyst Estimates
Analysts expect QS to report a loss per share of $0.19 for the second quarter (ended June 2024). Moreover, the company failed to surpass the consensus EPS estimates in three of the trailing four quarters, which is disappointing.
For the fiscal year ending December 2024, Street expects QuantumScape to incur a loss per share of $0.79, and the company’s loss per share for the fiscal year 2025 is expected to be $0.82.
Low Profitability
QS’ trailing-12-month ROCE of negative 36.67% is unfavorably compared to the industry average of 11.79%. Likewise, its trailing-12-month ROTC and ROTA of negative 23% and negative 31.50% are lower than the industry averages of 6.26% and 4.22%, respectively.
POWR Ratings Show Uncertainty
QS has an overall F rating, equating to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. QS has a D grade for Sentiment, in sync with its disappointing analyst expectations. In addition, the stock has a D grade for Quality, consistent with its lower-than-industry profitability.
Also, the stock has a D grade for Stability. Its 60-month beta of 4.62 justifies its Stability grade.
QS is ranked last among 61 stocks in the Auto Parts industry.
Beyond what I have stated above, we have also given QS grades for Value, Growth, and Momentum. Get all QS ratings here.
Bottom Line
The rapid global shift toward EVs is driving a surge in demand for high-performance, long-lasting lithium batteries. Although QS is well-positioned to capitalize on this expanding EV market, the company has not yet launched its batteries commercially. The solid-state battery maker has incurred massive losses since its inception and has not generated any revenue.
Given QS’ disappointing financials, poor profitability, high debt, and bleak outlook, it could be wise to avoid this stock now.
Stocks to Consider Instead of QuantumScape Corporation (QS)
The odds of QS outperforming in the weeks and months ahead are significantly compromised. However, there are many industry peers with impressive POWR Ratings. So, consider these three stocks rated A (Strong Buy) from the Auto Parts industry instead:
Allison Transmission Holdings, Inc. (ALSN)
Garrett Motion Inc. (GTX)
TOYOTA BOSHOKU CORPORATION (TDBOY)
To explore more A and B-rated auto parts stocks, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
QS shares were trading at $9.09 per share on Thursday morning, up $0.17 (+1.91%). Year-to-date, QS has gained 30.79%, versus a 18.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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