It’s no secret the investing world is obsessed with all-electric vehicles (EVs). Several EV stocks, Tesla (NASDAQ:TSLA) being chief among them, have given investors triple-digit gains this year. But in recent weeks, the stocks have seen a correction. Against this backdrop, QuantumScape (NYSE:QS) stock, down 12.5% last month, becomes an interesting play.
QuantumScape offers a solid-state battery (SSB) solution for electric vehicles to solve many problems preventing EVs from wider adoption. Although these are lofty goals, it has attracted significant institutional and retail investor interest in the possibility of commercialization of its products. What has made the risk and reward ratio even more favorable is the stock’s steep drop from a 52-week high of $132.73 per share.
The San Jose, California-based company recently published performance data for its solid-state 4-layer battery. The results are very encouraging. It’s worth noting no competitors have come close to its level. The company has also revealed it is actively working on a 10-layer battery cell, which is far denser and can hold more charge. All around this is a great incentive.
But before we delve into the company’s operations further, it is important to understand QuantumScape is a well-funded startup. Since you are investing when it is at a nascent stage, one has to remember that there will be bumps along the way. Hence, it’s better to treat QuantumScape as a long-term investment.
A Groundbreaking Technology
What sets QuantumScape apart is its ambition. Most analysts and investors agree EVs are the future. But to get to that future, we need to address time spent charging and total mileage per charge. If we do not do that, the wider adoption of EVs becomes a pipe dream. That is where QuantumScape believes it can help.
How? By transforming battery technology. Since the early 90s, the Lithium-Ion battery has revolutionized our world, powering everything from smartphones to laptops to EVs. However, technology is ever-changing, and it’s no different here.
The lithium-ion battery suffers from certain flaws, making it impractical for EVs in the long run. The battery is highly sensitive to high temperatures, which is why it tends to overheat. If the battery is completely discharged, it’s impossible to recharge it. And the battery can last only two to three years.
QuantumScape’s lithium-metal battery will address the wastefulness using anodeless technology and swap the liquid electrolyte for a solid one, enhancing the power and efficiency of the battery. The model QS has come up with is also resistant to high temperatures. The potential for this technology is massive, which is why it has attracted the attention of investors like Bill Gates and Volkswagen (OTCMKTS:VWAGY).
If the company is successful, as Josh Enomoto said in his recent article, investors will see crypto-like gains if the technology at the heart of this enterprise is successful. According to the company, the results of their 4-layer battery show that the low temperature of the battery is encouraging and one of the most promising results of early testing.
Volkswagen Partnership
One of the biggest reasons EV bulls love QS is its partnership with Volkswagen; incidentally its largest shareholder. The German automaker plans to launch almost 70 new electric models, so the relationship with QuantumScape is a strategic one.
QuantumScape has a timeline-based relationship with Volkswagen, and the recent results represent the completion of another milestone. The relationship puts Volkswagen in an enviable position in comparison to some of its other EV peers. Having the backing of such a famous and solid company like Volkswagen is worth its weight in gold.
The two are in the process of selecting the location for a solid-state battery pilot-line facility which will be where QuantumScape will manufacture the batteries Volkswagen will use for several years to come. According to a press release for the company, the site being contemplated is based in Salzgitter, Germany. The move makes sense since Germany is a country that is aggressively pursuing green policies to reduce its carbon footprint.
QS Stock Presents a Compelling Case
If you invest in QS stock it has to be from a long-term perspective. QuantumScape will not have any revenue to show for itself until 2024. That is a long time to wait for an investment to bear fruit.
But as my colleagues have said, investing in QS stock is like investing in any well-funded startup. There will be growing pains, but if the company delivers, you will be laughing all the way to the bank.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.