Is QuantumScape Stock a Buy Now?

QuantumScape (NYSE: QS), a developer of solid-state lithium metal batteries, is a difficult stock to value because it hasn't commercialized any of its products or generated any meaningful revenue yet. Before it went public by merging with a special purpose acquisition company (SPAC) in November 2020, it claimed it could commercialize its first batteries by 2024. It also predicted its revenue would rise from $14 million in 2024 to $275 million in 2026.

But today, EV makers are still waiting for its first solid-state batteries, which should provide better thermal resistance, shorter charging times, and higher charging capacities than liquid-electrolyte lithium-ion batteries. That's why it remains a divisive stock -- even after it pulled back nearly 97% from its all-time high of $131.67 on Dec. 22, 2020. So should investors accumulate QuantumScape's stock as a contrarian play before it commercializes its first batteries?

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What's the bull case for QuantumScape?

QuantumScape's QSE-5 batteries have an energy density of over 800 Wh/L (watt hours per liter) and can be fast-charged from 10% to 80% in less than 15 minutes. For reference, the traditional lithium-ion batteries used in most EVs have an average density of 300 Wh/L to 700 Wh/L with an average fast-charging time of 20 minutes to an hour.

Those solid-state batteries could reshape the EV market, but they're also pricier and tougher to scale with the industry's current manufacturing capabilities. QuantumScape plans to address those shortcomings by replacing its current ceramic separator process (Raptor) with its new process (Cobra) -- which will improve its equipment productivity, cell reliability, and overall yields. This April, QuantumScape partnered with Murata to ramp up its production of the ceramic film used in its separators. That collaboration could accelerate its transition toward its Cobra separator process.

QuantumScape expects the Cobra upgrade to pave the way toward its first field tests and commercial deliveries in 2026. It's already produced low-volume test samples of its QSE-5 battery with Raptor, and it intends to produce some higher-volume samples with Cobra this year.

QuantumScape has been co-developing its batteries with Volkswagen (OTC: VWAP.Y), which is also one of its top investors, over the past decade. In 2022, Volkswagen launched a new group, PowerCo, to test out those prototype batteries.

During a road test last year, PowerCo found the QSE-5 batteries retained more than 95% of their original energy capacity after 1,000 charging cycles, which would enable an EV to drive over 300,000 miles without any noticeable loss in range. That's well above the industry standard for retaining an 80% capacity after 700 charging cycles.

PowerCo holds a licensing deal to mass produce up to 40 gigawatt-hours (GWh) a year (which can be expanded up to 80 GWh) using QuantumScape's battery technologies. So instead of shouldering all of the costs of mass producing its batteries, QuantumScape can rely on Volkswagen to manufacture those batteries as it collects the higher-margin royalties and licensing fees. That deal is nonexclusive, so QuantumScape can strike similar deals with other automakers.

If QuantumScape sticks with that capital-light licensing strategy, analysts expect its revenue to rise from $3.8 million in 2026 to $84.3 million in 2027. The global solid-state battery market could expand at a compound annual growth rate (CAGR) of 41.6% from 2025 to 2032, according to Fortune Business Insights, so it could have plenty of room to grow once it finally commercializes its first batteries. That might be why its insiders were still net buyers of the stock over the past 12 months.

What's the bear case against QuantumScape?

That long-term outlook seems bright, but the bears will warn you that QuantumScape is still unprofitable, it's expensive at 31 times its projected sales for 2027, and it's increased its number of shares by more than 60% since its SPAC merger with its secondary offerings and stock-based compensation.

QuantumScape also faces stiff competition from automakers like Toyota (NYSE: TM) and Nio (NYSE: NIO) -- as well as similar start-ups like Blue Solutions -- in the tight race to commercialize solid-state batteries. If one of those competitors crosses the finish line first, QuantumScape's business could collapse before it scales up.

Is it the right time to buy QuantumScape's stock?

QuantumScape is still a speculative stock which will remain volatile for the foreseeable future. It could be worth nibbling on today if you expect its Cobra upgrade, its ceramics collaboration with Murata, and its manufacturing partnership with PowerCo to pay off. That said, investors should still keep a close eye on its emerging competitors. If QuantumScape falls behind its rivals in this evolving market, its business could quickly collapse.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.