QuantumScape: Solid State EV Batteries Nearing Commercialization

Key Points

• QuantumScape updates investors on its progress towards commercializing its QSE-5 solid-state lithium-metal EV battery, which can last longer, charge faster and provide driving ranges of 400 to 500 miles in between charges, compared to 200 to 300 miles for conventional lithium-ion batteries.
• QuantumScape is shipping its QSE-5 B-samples to automotive partners for rigorous testing before moving to the C-samples, which are the final pre-production models.
• QuantumScape will receive a $130 million royalty prepayment from its partner PowerCo as it starts mass producing its QSE-5 solid-state batteries, which are targeted to have an energy density of 1,000 WH/l, which can retain 95% of its original capacity even after eight years and 1,000 charges.

QuantumScape Co. NYSE: QS is a battery technology company that has been developing its next-generation solid-state lithium-metal electric vehicle (EV) battery for nearly 15 years. The auto/tires/trucks sector company is in its final stages before commercialization commences in 2025, when they start shipping their commercial batteries to start generating revenue. It’s the third quarter of 2024, and the company lost 23 cents a share, missing consensus estimates by 4 cents, with no revenue since it is still in the pre-revenue stage. However, its update on its path toward commercialization helped prop the stock higher by 25%.

From Proof of Concept to Commercialization

In the past year, QuantumScape has been making believers out of doubters with its solid-state lithium-metal (SSLM) battery technology. The recent performance test with PowerCo, a Volkswagen AG (OTCMKTS: VWAGY) electric battery subsidiary, convinced them to double down on its license. Its studies proved that after 1,000 charges, which is the equivalent of 500,000 kilometers (KM), its 24-later SSLM battery (cell) can still retain 95% of its energy. This will also ease range anxiety as EVs will be able to travel much longer, between 400 to 500 miles in between charges, compared to 200 to 300 miles today with conventional lithium-ion EV batteries.

Compare this to conventional lithium-ion batteries, which degrade to 70% of their initial capacity after 750 charge cycles on average, which is when warranties usually end. This is about seven to eight years of use until a new battery replacement costing upwards of $6,000 to $20,000 is needed.

QuantumScape's proprietary ceramic acts as a separator for its bi-layer cathode stack. The lithium-metal anode-free infrastructure enables a significantly higher density (800 WH/L), allowing for a longer range and the ability to charge and discharge quickly. It can result in delivering a charge of up to 80% in under 15 minutes. It's also safer than traditional lithium-ion batteries because it swaps out flammable liquid electrolytes with its solid ceramic electrolyte. Its commercial batteries are targeted to reach a volumetric energy density of up to 1,000 WH/L.

Taking the Asset-Light Approach Through Licensing Its Technology

The July 11, 2024, licensing deal provides PowerCo with a non-exclusive license to manufacture up to 40 GWh annually of solid-state rechargeable lithium metal EV batteries using QuantumScape’s technology. PowerCo has the option to expand the license to 80 GWh, which provides the potential to outfit a million EVs with solid-state cells. This will help kick off commercialization in 2025 without the high capital costs of manufacturing their batteries, which QuantumScape plans to do eventually.

Once its QSE-5 B-sample batteries are tested and meet all of Volkswagen’s benchmarks, they will undergo C-sample testing before mass production. In exchange for the license to mass-produce battery cells, PowerCo will make a $130 million royalty prepayment.

Low Volume B-Samples In Production

In its Q3 2024 update, QuantumScape stated it had begun small-scale production of its QSE-5 B-sample prototypes, which are being shipped to its automotive partners shortly. These had a density of 844 WH/L with a fast charge under 15 minutes. The evolution of this journey started with testing its 24-layer A0 prototype batteries to OEMs, then QSE-5 Alpha-2 cells, and now onto the B-samples. The rigorous testing will take several months with its automotive customers. The company stated that it will need to improve on yield, cell reliability, and equipment productivity, which will require bringing its advanced Cobra separator process into production in 2025. Cobra is the final stage after the current Raptor stage in the "disruptively fast separator production process."

These will be the C-samples, which are production-ready cells manufactured on a pilot line and will demonstrate high-volume manufacturability. Once C-samples are tested and finalized by customers, full-scale production and commercialization of its QSE-5 battery is targeted. These are the catalyst events that will propel the stock higher.

QS Stock Attempts a Rectangle Breakout

A rectangle is comprised of a flat-top upper trendline resistance and flat-bottom lower trendline support. The breakout occurs when the stock surges through the upper trendline, which becomes a support level.

QS formed a rectangle pattern after peaking at the $6.14 level and bottoming at the $5.30 level. The rectangle trading channel contained the QS trading range for nearly three months heading into its Q3 2024 earnings report. The update on its progress toward commercialization was enough to gap the stock up to $6.14 from the $5.35 close and set the upper and lower gap fill ranges. The daily anchored VWAP resistance is at $6.55. The daily RSI is slipping to the 59-band. Fibonacci (Fib) pullback support levels are at $5.77, $5.35, $4.75, and $4.39.

QuantumScape’s average consensus price target is $6.13, and its highest analyst price target is $8.00. Seven analysts have five Hold ratings and two sell ratings for the stock, with an 11.25% short interest.

Actionable Options Strategies: QS is still in the pre-revenue stage but has many catalysts lined up as they update their progress toward commercialization, targeted in late 2025. Bullish investors with a longer time frame who want to spend less capital can consider buying out-of-the-money (OTM) directional LEAPS call options.