Most Special Purpose Acquisition Companies (SPAC) are trading well below their highs. QuantumScape (NYSE:QS) is the exception. If investors ignored the massive December 2020 run-up that sent QS stock to a high of $132.73, the SPAC is trending steadily.
Investors are hungry for electric vehicle (EV) component suppliers. Companies that offer innovations in EV batteries will fare the best. Investments in QuantumScape are a vote of confidence for the battery firm.
Volkswagen Investment Lifts QS Stock
QS announced that it met Volkswagen’s (OTCMKTS:VWAGY) technical milestone on March 31. This triggers a milestone payment from VW. The second and final closing will reward QS with another $100 million by VW. The $100 million investment will give the firm the additional liquidity needed for the growing firm. Chief Executive Officer Jagdeep Singh said, “we look forward to working jointly to bring solid-state lithium-metal battery technology into industrialized mass-production.”
Investors wary of investing in a novel company having no product will want to avoid QS stock. Yet the VW-QS deal lowers the uncertainties considerably. The automotive firm needs the battery. It is a key component in its EV strategy.
VW’s EV shift is ambitious. It wants battery-powered vehicles to account for 70% of European sales and 50% in both the U.S. and China.
QuantumScape’s Moat
QuantumScape is a leader in developing next-generation solid-state lithium-metal batteries. It has ambitious plans in revolutionizing the EV battery industry. It spent ten secretive years developing the product. In Dec. 2020, QS held a video call to present the battery performance. The company said that its single-layer pouch cells could charge to 80% capacity in only 15 minutes.
None of the lithium batteries in current EVs charge that fast. Since there is no dendrite formation, QS does not need to throttle back on charging.
In 2019, dendrite formations caused battery shortages in Tesla (NASDAQ:TSLA) EVs. Conversely, an ex-Tesla engineer said that “solid-state batteries are a false hope.” Experts will continue to argue the merits of QuantumScape’s prospects, given QS figured out how to store more energy by weight and volume without giving up its durability. Using ceramic materials that resist the formation of dendrites gives QS a strong moat.
For now, the market is not panicking on QuantumScape’s advancements. Nio (NYSE:NIO) has battery sharing as a service workaround. This lowers the price of its EVs and gives its customers a ready-charged battery swapping solution. Tesla’s valuations did not change by much, either.
Opportunity
President Joe Biden’s massive $2 trillion infrastructure and stimulus plan re-ignited investor interest in EVs. The plan includes investments worth $174 billion in EV initiatives.
Besides investing in TSLA or NIO stock, investors may look at Chargepoint Holdings (NYSE:CHPT) or Blink Charging (NASDAQ:BLNK). QuantumScape’s commercially available battery is still a few years away. Impatient investors may consider charging station companies in the short term. But continued coverage on QS’s prospects in the next few years should attract investors.
The company will act like a biotechnology stock on the markets. Just as shareholders wait for clinical results, they will need to wait patiently for QS to bring a product to market.
Experts said that the EV market is poised for record sales in 2021. Consumers have a wide variety of choices. Add the government’s pledge to electrify automobiles and the demand for EV batteries will climb. By the time QuantumScape has a product on the market, it will have billions of dollars worth of pre-orders.
Most SPACs will lose money for investors. QS shares are bucking the trend. Markets have a strong demand for companies offering clean energy solutions. The battery EV is in the early phases of strong growth for the next few years.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.