Quantumscape (NYSE:QS) stock has been a long-term bet for 13 years.
We should now know by the end of 2023 if the bet can pay off.
But there is a bull case to be made, which is why Volkswagen (OTCMKTS:VWAGY) still backs it. That is based on Quantumscape being ready to deliver its first product in quantity, as early as the third quarter of this year.
The success of that product will determine the company’s future path.
A Closer Look at QS Stock
Quantumscape’s goal has been to create a solid state battery, with the energy density of lithium ion, that will last longer and carries no risk of catching on fire.
This first product will be a 24-layer solid-state cell with a capacity of 5 Amp-hours (Ah), likely packaged like the 2170 cells used by most electric cars.
Quantumscape believes it can triple production of its current design with its current equipment. New manufacturing equipment should deliver even higher output next year.
It’s after these cells leave the factory that the rubber for Quantumscape will hit the road. Real data should soon emerge telling the market whether that product can beat other designs.
Readers of its financial reports will also need to look at manufacturing costs, and the costs to scale production. But we will soon have some real-world reports on its charging capacity, its durability, and its performance in the field.
These engineering problems, and their solution, mean more than Quantumscape’s financial results, which until it is in production mainly represent development costs. The cash drain is not enough now to seriously threaten the company.
The Next Steps
There remain some other steps to take beyond manufacturing. Quantumscape believes it can tweak its designs to get more energy density, and durability. Its cash burn will increase as production begins, but sales will mean cash generation.
Chinese companies claim they have already arrived where Quantumscape is heading. Nio (NYSE:NIO) claims it will deliver cars with solid state batteries from WeLion this summer. Ganfeng says it’s now producing solid state batteries. CATL says its latest designs have the energy density to power airplanes.
Among all these announcements, I’m only worried about Samsung. The Chinese makers will have a touch time winning western markets because of the ongoing political tension concerning Taiwan.
Samsung doesn’t have that problem, and the company is scaled enough to pose a real threat, even if its design isn’t quite as good as that of Quantumscape.
The Bottom Line
The bottom line is that we’re soon going to know whether Quantumscape can succeed.
The reviews on its first batteries will come out by the fourth quarter. The shape of the international competition should also be known by then. If its technology is sound but the competition is scaled, it can still sell out to someone with more money.
It’s important to know that the EV battery market is the EV market. That’s where the value and the costs lie. It’s a market currently growing nearly 20% per year, adding $53 billion of new addressable market in 2027 by one estimate.
There is plenty of room for a company like Quantumscape to find its niche. Assuming it can deliver something this year.
At the time of publication, Dana Blankenhorn directly owned no shares, directly or indirectly, in any company mentioned in this article.