4 Reasons to Buy QuantumScape Stock Like There's No Tomorrow

Looking for a new growth holding for your stock portfolio? Maybe something outside of the artificial intelligence mania? If you can stomach the risk, there's an opportunity undeniably brewing in the electric vehicle space that just might shove the still-nascent EV industry into the mainstream. And a little company called QuantumScape (NYSE: QS) is quietly poised to help make it happen.

What's QuantumScape?

It's not a household name. Indeed, with a market cap of less than $10 billion and no real revenue to speak of, it doesn't turn many heads at all.

Don't let its small size and lack of profitability fool you, though. QuantumScape's day is coming. And it's apt to be soon, and may happen in an instant.

QuantumScape is working on better lithium-based batteries for electric vehicles, one of the business's biggest stumbling blocks. Most consumers -- in the U.S. anyway -- are concerned that a single charge may not get them as far as they need to go (and back). They're also worried that charging their EV's battery might take too long, if they can charge it at all.

The key to QuantumScape's solution is the creation of the material used to store and conduct electricity within the battery itself. Whereas ordinary lithium-based batteries are largely liquid crystalline, QuantumScape's technology allows for the use of more energy-dense solid material -- a lithium-metal anode, in particular, which means its batteries don't require a costly (and somewhat heavy) anode. The end result is a battery that's not only more durable than the standard lithium-ion batteries currently used with most electric vehicles today, but also one with more capacity. QuantumScape says its batteries can offer about 25% more driving distance than similarly sized and comparably heavy ordinary EV batteries.

There is one not-so-modest concern here. That is, QuantumScape isn't actually selling these batteries in mass quantities yet. It's only making and delivering prototypes for EV makers to test and provide feedback. As such, the company remains deeply in the red.

This is one of those cases, however, where you might want to take a shot anyway, based on a technology's plausible potential.

Four reasons to dive in sooner rather than later

Betting on QuantumScape isn't just a mere coin toss, though. There are several clear arguments as to why this ticker could turn into a sizable winner for investors willing and able to take the admittedly above-average risk. Four stand out among the rest.

1. This tech is now a must-have

For a while, it wasn't clear that the EV industry needed better batteries, and particularly batteries with a markedly higher cost; solid-state batteries now cost anywhere from three to five times as much as the ordinary lithium-ion batteries they'd be replacing. The entire electric vehicle industry might be forced to make solid-state batteries standard, though, given the sheer number of EV makers that have already committed to the tech.

Cases in point: Automotive giant Toyota Motor recently announced it was going to be launching the world's first solid-state lithium-battery-powered EV in 2027. Mercedes-Benz also recently drove a solid-state battery-powered EV over several hundred miles. Meanwhile, China's BYD Company (OTC: BYDDY) -- the world's biggest electric vehicle maker -- has been quietly tinkering with long-range solid-state batteries for some time now, even if it's going to be a few more years before they're actually installed in its production-line EVs.

The point is that the electric vehicle industry may have no choice but to make this complicated battery tech the standard within the foreseeable future. Scaled-up production of these batteries, of course, will drive their cost down.

2. QuantumScape has a major partner in the business

Plenty of EV makers are working on solid-state lithium batteries, but not by themselves. Most of them are working with a specialist partner. Toyota is working with Sumitomo Metal Mining Co., for example, while BYD is working with China's CATL (Contemporary Amperex Technology Company). Mercedes' EV battery partner is Factorial Energy, which expects to see its solid-state batteries capable of 25% more driving range installed in all of Mercedes-Benz's electric vehicles by 2030.

QuantumScape isn't going it alone either. Volkswagen (OTC: VWAGY) is its major developmental partner. Volkswagen wholly owned subsidiary PowerCo is a major QuantumScape stakeholder, in fact.

This is no small matter. Although BYD is currently the world's top manufacturer of EVs, and Toyota sells the most vehicles in any given year, Volkswagen is typically the biggest name in the automotive business in terms of size and revenue. This reach will prove invaluable as it shifts production away from internal combustion engine vehicles and toward battery-powered and hybrid automobiles.

In this vein, the company aims for roughly two-thirds of its sales in Europe (where the market is much more pro-electric) to be EVs by 2030, with 20% of its sales within the U.S. being electric vehicles by the same date. To do so, it's going to need QuantumScape's capabilities and capacity.

3. It might actually be the first to mass-commercialize solid-state EV batteries

Although several carmakers, as well as battery manufacturers, are clearly working on next-generation EV batteries, it's inescapable that none of them are going to be ready for mass commercialization for several years.

Image source: Getty Images.

That is, except for perhaps QuantumScape. Although it's certainly been frustratingly slow at times with developmental progress, the company still suggests it will be able to ship enough B1 samples of its newest QSE-5 battery cells next year to give manufacturers a chance to test them at scale, with actual commercialization maybe even materializing by the end of 2026. Meaningful revenue still wouldn't start flowing in earnest until 2027, but that would still be sooner than most of its competitors would be able to mass-produce the solid-state batteries they're currently working on.

This, of course, could prove quite catalytic for the stock. It may even prove catalytic before these sales actually take shape. The market has a knack for moving in anticipation of a company's future, after all.

4. The company is undervalued, given the opportunity at hand

You could argue that unprofitable QuantumScape is worthless. Ditto for its stock. As was noted, though, this speculative trade is largely rooted in the company's plausible future.

And that future is bright indeed. Research from Straits Research indicates that the global solid-state battery business is poised to grow at an average annualized pace of more than 36% through 2033, when it will be worth more than $33 billion. And even then, there will be more growth to be enjoyed. Electric vehicle industry research outfit IDTechEx believes the passenger car slice of the EV automobile market is going to grow by nearly 10% per year through 2045.

Given this significant long-term potential ramp-up, all of a sudden, QuantumScape's current market cap of $10 billion doesn't seem like all that much.

Just keep the risk in perspective

Don't misunderstand. This ticker isn't your best "first" stock, nor should it be a major piece of any portfolio you'll be depending on in retirement. It brings above-average risk to the table, to be sure. You can count on continued above-average volatility, too, particularly given that the stock's present price is about twice analysts' consensus target of $7.36.

If you can limit your risk by limiting the size of your position, though, QuantumScape stock is a compelling prospect, especially while it's down a bit from its mid-October peak. A bunch of different pieces of its story are now finally falling into place. Investors are starting to take notice and believe. That's a big part of what's been missing.

James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends BYD Company and Volkswagen Ag. The Motley Fool has a disclosure policy.