Should You Buy QuantumScape While It's Below $7.50?

Electric vehicles (EVs) aim to transform transportation. However, like any groundbreaking technology, EV batteries have hurdles to overcome before EVs become widely adopted. Some common criticisms of EVs center around their long charging times and shorter driving range compared to gas-powered vehicles.

That's where QuantumScape (NYSE: QS) comes in. The company is dedicated to engineering batteries that overcome the obstacles current lithium-ion batteries face and make EVs more appealing to consumers. Earlier this year, QuantumScape made headlines with excellent results during an endurance test of its battery. It has also secured funding to extend its runway and recently hit a significant milestone with the shipment of its B-sample cells for further testing.

QuantumScape is making progress, but the stock is 96% below its peak price from four years ago and near an all-time low. While its low price may make it seem appealing, there are some things you should know if you're considering scooping up the stock today.

It's looking to solve some big EV challenges

QuantumScape aims to revolutionize battery technology and address several obstacles that have hindered the widespread adoption of EVs. Its cutting-edge solid-state lithium-metal batteries promise to make important advancements in several key areas: increased energy density, quicker charging times, and superior safety measures when compared to traditional battery systems.

The company had established a strategic partnership with Volkswagen. Earlier this year, Volkswagen's battery division, PowerCo, tested QuantumScape's solid-state batteries and reported stellar results, achieving 1,000 charging cycles, with the battery cells showing minimal wear signs. This indicates that an electric vehicle equipped with their technology could potentially cover over 500,000 kilometers without experiencing a noticeable decrease in range.

Image source: Getty Images.

Its battery technology is undergoing rigorous testing

Last month, QuantumScape stock surged higher after it announced it was producing and shipping out low volumes of its B-sample cells. The company says this was its most important goal for 2024, and it began shipping these cells to its automotive customers for extensive testing.

This testing by automakers will take months to complete. This is part of a three-step process, involving A, B, and C prototype cells to undergo internal and customer testing before the commercial production of its product, QSE-5. Ultimately, the company looks to validate that its technology enables EVs to drive further, charge faster, and operate more safely than those in the market today.

Keep an eye on its cash burn

QuantumScape's battery technology is coming along, but the company is pre-revenue and continues to burn cash in the meantime. Through the first nine months of this year, QuantumScape has an operating loss of $397 million, up from its operating loss of $354 million last year through the same period.

QS Cash from Operations (Quarterly) data by YCharts

To help with cash flow, QuantumScape agreed to grant PowerCo the license to mass produce battery cells based on QuantumScape's technology. Under the license, PowerCo can manufacture up to 40 gigawatt-hours (GWh) per year, with the option to double this production to 80 GWh. This would be enough to power roughly 1 million vehicles per year.

Is QuantumScape a buy today?

QuantumScape's agreement with PowerCo extends QuantumScape's cash runway by 18 months to 2028, thanks to a $130 million prepayment of royalties from PowerCo. It also allows the company to take a capital-light approach and reach its gigawatt-hour scale faster under its prior agreement.

However, QuantumScape continues to burn cash today, and several steps need to happen before its batteries can be manufactured at scale and commercialized. Not only that, but according to the four analysts covering the company, it won't be until 2029 that QuantumScape generates positive net income. In the meantime, its stock price will be driven by its progress with its B-samples and further prototype development.

For these reasons, investing in the up-and-coming battery technology company is highly speculative and risky, and most investors are best off watching this one from the sidelines for now.

Should you invest $1,000 in QuantumScape right now?

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