QuantumScape Pulls Back After July Surge: Is It Ready to Rebound?

Key Points

• QuantumScape inches closer to the commercial rollout of its solid-state lithium-metal battery in 2025.
• QuantumScape amended its non-exclusive agreement with PowerCo to manufacture 40 GWh with an option to scale up to 80 GWh, which can outfit up to 1 million EVs annually.
• QuantumScape's prototype cells fully charge in 15 minutes and have been shown to maintain 95% energy retention after 1,000 charge cycles, adding an extra 500,000 KM to its lifecycle.

After 13 years, QuantumScape Co. NYSE: QS is getting closer to the launch of its first commercial solid-state lithium-metal (SSLM) battery. Its announcement of the extended production agreement with Volkswagen AG (OTCMKTS: VWAGY) subsidiary PowerCo sent shares rocketing over 40% up to $9.52 on July 17, 2024. Shares have since pulled back down to complete the gap-fill at $5.45, and it's getting ready to bounce again. The company is targeting 2025 to begin high-volume production of its solid-state electrolyte separator. The launch of its first commercial product, QSE-5, will follow after.

QuantumScape operates in the auto/tires/trucks sector, competing with EV battery technology companies, including NIO Inc. NYSE: NIO, Enovix Co. NASDAQ: ENVX, and Tesla Inc. NASDAQ: TSLA.

QuantumScape: From Proof of Concept to Reality

QuantumScape has proven that its SSLM battery can maintain 95% energy retention even after 1,000 charge cycles equivalent to 300,000 kilometers (KM). PowerCo confirmed this from test results on a Quantumscape 24-layer SSML battery. This results in adding an extra 500,000 KM without any noticeable range degradation. It also helps to ease range anxiety among potential EV buyers, which is the fear of running out of power during a trip and being stranded with no charging stations available.

PowerCo Is Convinced and Goes All in on QuantumScape

Test results were so convincing that PowerCo extended its deal with QuantumScape on July 11, 2024, to manufacture up to 40 GWh annually and an option to expand to 80 GWh under a non-exclusive licensing agreement. This has the potential to supply SSML batteries to a million EVs a year. PowerCo will manufacture the batteries and provide the workforce and facilities to make it happen. PowerCo is also a subsidiary of the world’s largest automaker, Volkswagen. Volkswagen plans to capture 10% of the United States EV market by 2030.

QuantumScape: Preparing For the Launch

In March 2024, QuantumScape started shipping 6-layer Alpha-2 prototype battery cells, which feature the primary function of QSE-5, enabling key customers to test performance parameters. The 6-layer cells are actually denser than the earlier 24-layer. They are being tested in customer labs and awaiting feedback. Customers include automotive and consumer electronics manufacturers. The next step is the actual QSE-5s, which can push the boundaries of solid-state performance. The low-volume prototype production of QSE-5 B0 is expected in 2024, and it will be heading into the 2025 production of its solid-state electrolyte-separator using the Cobra equipment and process. Commercial launch of the 24-layer QSE-5 is expected shortly after that.

QS Stock Completes the Gap Fill and Starts to Rise Again

The daily candlestick chart for QS illustrates the initial falling wedge breakout on the PowerCo news that triggered a gap from $5.45 to $6.57, accelerating to a peak of $9.52. When the smoke cleared, QS fell all the way back to where it started at the $5.45 gap-fill level. Backfilling, it's like pouring cement into a hole in the sidewalk. It solidifies the gap. Shares have started to climb again, filling the gap. The daily relative strength index (RSI) is slowly rising again to the 50-band. Pullback support levels are at $5.45 gap fill, $4.99, $4.67, and $4.15.  

Pre-Revenue Stage Nothing Burger, Yet

On July 24, 2024, Quantumscape reported a Q2 2024 EPS loss of 25 cents, missing consensus estimates by 2 cents. Revenues were zero since the company is still in its pre-revenue stage, as it has been for the past 13 years. The company maintains its full-year 2024 guidance of adjusted EBITDA loss between $250 million to $300 million. It expects to be on the lower end of its capital expenditure guidance range of $70 million to $120 million. Shares fell 7% on the release.

The Benefits of QuantumScape's SSLM Batteries

Since SSLM batteries have no flammable liquid components like the current lithium-ion batteries, they are much safer products. The batteries have a longer useful lifetime due to eliminating capacity loss at the anode interface. The 15-minute full fast charge is also superior to existing EV batteries, which can take hours to charge fully. SSLM batteries can charge 80% in 10 minutes.

QuantumScape CEO Siva Sivaram commented regarding the safety of its cells, “One noteworthy result from prototype cell testing was demonstrating thermal stability up to 300 degrees centigrade. For reference, we tested conventional high-energy lithium-ion cells, which burst into flame between 174 and 185 degrees C.”

Sivaram concluded, “In our discussions with our customers, safety is a different maker. A cell that can offer fundamentally safer chemistry not only adds value to existing applications like automotive and consumer electronics but also potentially opens up new markets that current technology is unable to serve effectively.”

QuantumScape analyst ratings and price targets are at MarketBeat. There are seven Wall Street analyst ratings on QS stock: one Buy, four Holds, and two Sells. QS has an 11.5% short interest.