Why investors are betting on QuantumScape's (QS) future
Despite having the word quantum in its name, QuantumScape Corporation (QS) is not actually a quantum computing company.
But one thing that QuantumScape shares with companies in the computing space is that it is still years away from the commercialization of its product, which means investors are betting on its future without having substantial performance data to go on right now.
What QuantumScape is building are solid-state EV batteries, which have long been considered "a Holy Grail for battery engineers all over the world," as Car and Driver noted.
These batteries contain no electrolyte and promise longer charges at a cheaper cost with a better safety record than traditional batteries.
No company currently has solid-state batteries on the market, creating the sort of race that is also happening in the quantum computing sector. Back in 2022, Toyota Motor Corporation (TM) announced plans to roll out solid-state batteries by 2025, but then changed that target the following year to 2027.
Most Wall Street analysts are expecting QuantumScape to hit the market with its batteries in 2028, as Barron's noted, but Evercore ISI is not expecting commercialization to happen until 2029.
Nonetheless, the "Holy Grail" hype for solid-state batteries has investors bullish on the company's future growth.
And in the same way that quantum computing stocks have been surging this year despite being years from commercialization, QuantumScape's stock has soared nearly 150% YTD.
However, the stock has sunk 16% over the past month, as Wall Street has recently grown somewhat skeptical about when it will actually go to market with its batteries.
Analysts seek clarity on commercialization timelines
Evercore ISI was the last firm to have a Buy rating on QuantumScape, but its lead analyst Chris McNally downgraded the stock last month to Hold from Buy, noting "upside limited without faster timelines or concrete TAM (total addressable market) expansion outside auto."
However, McNally did also raise the price target to $12 from $8 despite the downgrade.
Of the nine analysts covering the stock, six have a Hold rating and three have it as a Sell.
HSBC analysts, led by Laisha Zaack, also downgraded QuantumScape's stock last month from Hold to Reduce, while raising their price target 98.1% to $10.50 from $5.30. The hike on the price target was due to "new collaboration and ecosystem revenue streams," but Zaack also noted uncertainty around the company's commercialization timeline, which led to the downgrade.
"Although encouraged by QS's achievements, we see more risk to downside than upside, citing a lack of details on the licensing contract structure and new revenue streams, limited visibility on how cost competitive the tech can be once scaled up, and uncertainty on when QS battery cells will be in cars on the road," Zaack wrote.
QuantumScape said in June that it had achieved a "major milestone" by successfully integrating its advanced Cobra separator process into baseline cell production, moving it closer to producing solid-state batteries. The Cobra separator process is what separates the positive and negative sides of a battery, preventing short circuiting.
These separators in solid-state batteries are typically ceramic and difficult to manufacture, which is why the company saw it as a significant achievement.
When QuantumScape does finally go to market with its solid-state battery, Volkswagen is seen as the likely first customer since the German automaker is its largest shareholder with a 14% stake in the company.