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Don’t Bet Against Downtrodden QuantumScape Stock Just Yet

QuantumScape (NYSE:QS) stock has lost momentum over the past year. Currently, QS stock is trading at its all-time low after plummeting 87.5% from its December 2020 levels. Investors’ concern about the risks associated with the launch and…

QuantumScape (NYSE:QS) stock has lost momentum over the past year. Currently, QS stock is trading at its all-time low after plummeting 87.5% from its December 2020 levels. Investors’ concern about the risks associated with the launch and commercialization of the company’s lithium-metal based solid-state batteries has led to much of the pain.

Source: Michael Vi/Shutterstock.com

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Investing in QS stock, therefore, looks risky at this point given the potential challenges it faces in executing its launch. Furthermore, the company’s technology is still in the testing phase.

Several notable players in the industry are working on making solid-state batteries, but none of them have achieved commercial success.

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To date, only Toyota Motors (NYSE:TM) has confirmed production of solid-state batteries in its hybrid cars by 2025. Meanwhile, Solid Power (NASDAQ:SLDP), a company backed by BMW (OTCMKTS:BMWYY) and Ford (NYSE:F), is currently producing solid-state batteries.

However, if QuantumScape is successful in launching superior batteries (as it claims), QS stock will become a value creator. If its technology clicks, the long-term returns could be multi-fold.

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As a quick overview, QuantumScape is at a nascent stage. The company intends to develop and commercialize solid state lithium-metal batteries used in Electric Vehicles (EVs), stationary storage and other applications.

At present, EVs use lithium-ion batteries, which are heavier, less powerful and require more time to recharge. QS aims to address this issue by providing energy dense lithium-metal batteries, which will would mitigate most of the existing issues with current EV batteries.

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QS Stock: Encouraging Preliminary Tests

In January 2022, management disclosed that a test conducted on a single-layer prototype for its battery cells indicated that they could retain more than 80% of their initial energy under multiple temperatures. The batteries could charge from 10% to 80% in only 15 minutes.

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Normally, an internal combustion-engine takes five minutes to refuel and EVs using lithium-ion batteries take 30 minutes to recharge. If the company is able to improve batteries’ recharging capability, it should help increase EV adoption.

Government Support Should Bolster Growth Prospects

Many countries aim to reduce carbon gas emissions caused by ICEs. For example, the United States is committed to reducing carbon gas emissions by 50-52% by 2030. According to the International Environment Agency (IEA), the projected number of electric vehicles are expected to rise from 11.3 million in 2020 to 51.7 million by 2025 and 144.3 million by 2030.

The government aims to spur investment in the sector through various rebates, incentives and installing charging facilities. Furthermore, the Edison Electric Institute plans to invest $3 billion to help install charging facilities.

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Saudi Arabia, one of the major investors in QS, also aims to have at least 30% of its cars electric by 2030. By investing in the rapidly expanding electric vehicle market, the country intends to enhance its exposure to long-term growth opportunities.

In addition to the opportunities presented by government support, QS also has support from OEMs like Volkswagen (OTCMKTS:VWAGY), which seeks to generate half of its annual sales through electric vehicles by 2030 to decarbonize.

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Multiple support channels from numerous governments and companies will enable QuantumScape to play an instrumental role in shaping the growth of EV industry.

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Moving Beyond Electric Vehicles

Apart from EV industry, QuantumScape’s batteries can be used in other applications. In January 2022, the company entered a multi-year agreement with Fluence Energy (NASDAQ:FLNC) to supply its solid state batteries for stationary energy storage systems.

Initially, sample batteries will be supplied to Fluence for testing and validation. If results are positive, QS stock stands to gain strength from the multi-year supply agreement. This collaboration will likely be vital for QS’ long-term success.

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Bottom Line on QS Stock

QS management estimates commercialization of its batteries and subsequent revenue generation from them starting in 2024. However, there’s a long way to go before the technology can be commercialized. Along the way, the company will likely experience headwinds with its product development.

Having said that, QS stock has enough room to grow from the emerging opportunities in the industry. The company’s breakthrough technology has potential to change the landscape of the EV industry. Although, several risks remain, I would consider investing in the stock given its growth prospects.

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As such, QuantumScape stock should be particularly appealing after any deep correction.

On the date of publication, Sakshi Agarwalla did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. 

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Sakshi Agarwalla has more than eight years of experience writing equity research reports and preparing financial models for companies across various industries, as well as writing newsletters and financial articles. Recently, she assisted her Fund manager in executing trades, preparing weekly, monthly NAVs and writing newsletters. She has a postgraduate degree in finance and has completed CFA.    

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