Better Energy Stock: QuantumScape vs. NuScale Power

QuantumScape (NYSE: QS) and NuScale Power (NYSE: SMR) are both trying to disrupt older energy industries with their newer technologies. QuantumScape is developing solid-state batteries that could replace lithium-ion batteries, and NuScale is developing small modular reactors (SMRs) that could revolutionize nuclear power.

Both companies went public by merging with special purpose acquisition companies (SPACs). QuantumScape's stock opened at $24.80 in November 2020, soared to a record high of $131.67 a month later, but now trades at about $5 a share. NuScale's stock opened at $10.70 in May 2022, sank as low as $2 in November 2023, but now trades at around $21. Let's see why investors abandoned QuantumScape while embracing NuScale -- and if the latter remains a better buy.

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QuantumScape won't generate any revenue until 2026

QuantumScape's solid-state lithium-metal batteries are powered by solid electrolytes instead of the liquid electrolytes found in traditional lithium-ion batteries. That makes them less volatile, more resistant to heat, and faster to charge -- but they're also tougher to engineer and more expensive to manufacture than their lithium-ion counterparts.

QuantumScape's first battery, the QSE-5, has an energy density of over 800 Wh/L (watt-hours per liter) -- versus the average density of 300 to 700 Wh/L for lithium-ion batteries -- and can be charged from 10% to 80% in less than 15 minutes. It finally started to produce and ship its first low-volume samples of the QSE-5 in the third quarter of 2024.

That tech sounds promising, but QuantumScape can't ramp up its production until it upgrades its separator process from its current "Raptor" process to the new "Cobra" process to improve its cell reliability, production efficiency, and overall yields. It plans to complete that upgrade in 2025, but it doesn't expect to start mass-producing its commercial batteries until 2026.

So for now, analysts expect QuantumScape to rack up net losses of nearly $500 million per year in 2024, 2025, and 2026. They expect it to finally generate $7 million in revenue in 2026 as it ships its first commercial batteries.

QuantumScape is still firmly backed by Volkswagen, but it faces tough competition from similar companies like Blue Solutions as well as big automakers like Toyota Motor and Nio in the solid-state battery market. It's unclear if QuantumScape can ramp up its production before those rivals do, and that uncertainty caused its stock to plunge about 96% from its all-time high. But even after that steep decline, QuantumScape looks richly valued with an enterprise value of $1.9 billion.

NuScale sees catalysts on the horizon

NuScale produces the only SMRs certified with a Standard Design Approval (SDA) from the U.S. Nuclear Regulatory Commission (NRC). Its small reactors, which are installed in vessels with a diameter of just 9 feet (2.7m) and a height of 65 feet (20m), can be more easily deployed in areas that aren't suited for large nuclear reactors.

NuScale's designs are modular, so its pieces are pre-fabricated, delivered, and assembled on-site to cut costs and save time. However, its current NRC certification only covers the construction of a reactor that can generate 50 megawatts of electricity.

For its SMRs to be more cost-effective than a coal-fired power plant, it needs its reactor clusters to generate at least 77 megawatts of electricity. It expects the NRC to certify the SDA for its 77-megawatt reactor designs -- which will only take up roughly 1% of the space of a conventional reactor generating the same amount of power -- in 2025.

NuScale's plans are ambitious, but its skyrocketing expenses forced it to cancel the construction of its six nuclear reactors in Idaho last year and lay off 40% of its workforce this year. Those mass layoffs prompted the U.S. Securities and Exchange Commission (SEC) to probe its employment, severance, and confidentiality agreements.

Yet NuScale's stock rallied over the past year as new catalysts appeared. It secured a new supply deal with South Korea's Doosan Enerbility for SMR components, the U.S. Department of Energy (DOE) offered companies up to $900 million in cost-shared funds to accelerate the development of more nuclear SMRs, and Amazon partnered with Energy Northwest (a consortium of state public utilities) to develop four advanced SMRs to support its growing energy needs.

Analysts expect NuScale's revenue to stay nearly flat at $23 million in 2024, but they expect that figure to surge to $102 million in 2025. Yet it's still deeply unprofitable -- and its enterprise value of $2 billion already values it at 20 times next year's sales.

The better buy: NuScale Power

Both of these stocks are highly speculative. But if I had to choose one over the other, I'd stick with NuScale because it's already generating meaningful revenue, faces less competition, and has clearer catalysts on the horizon. I wouldn't touch QuantumScape until it concludes its costly Cobra upgrade and starts to commercialize its first batteries.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends NuScale Power and Volkswagen Ag. The Motley Fool has a disclosure policy.