QuantumScape Corporation: Attractive Upside For Patient Investors

Core Viewpoint - QuantumScape Corporation (NYSE:QS) is rated as a buy due to its potential upside if it successfully delivers its solid-state battery products, with recent progress in R&D, manufacturing, and a positive licensing deal with PowerCo strengthening its financial position [4][18]. Business Description - QuantumScape designs and manufactures solid-state lithium-ion batteries for electric vehicles, offering advantages such as enhanced safety, faster charging, and higher energy density compared to traditional batteries [5]. - As of Q2 2024, QuantumScape is not generating revenue and reported an operating loss of $134 million and an EBITDA loss of$72.5 million, indicating it is still in the R&D phase and experiencing cash burn [5]. Positive on Licensing Deal - The licensing agreement with PowerCo includes a 130 million royalty pre-payment, which alleviates financial pressure and extends QuantumScape's cash runway significantly [6]. - This deal also transitions QuantumScape to a more asset-light operating model, potentially leading to higher free cash flow in the future [6]. R&D and Manufacturing Process on Track - QuantumScape's R&D and manufacturing processes are reportedly on track, with robust customer engagements and successful prototype shipments to various sectors [8]. - The prototype testing has shown promising thermal stability, with tests indicating stability up to 300 degrees Celsius, which is significantly higher than conventional lithium-ion cells [8]. Key Milestones and Financial Outlook - A critical milestone is the successful production of a B-sample by the end of 2024, which would indicate the viability of the Cobra manufacturing process [10]. - QuantumScape's balance sheet is projected to sustain operations until it begins generating meaningful revenue, with total cash and equivalents estimated at around 1.2 billion post-PowerCo deal [12]. Valuation - Forecasting revenue is challenging due to the lack of historical data, but management initially expected revenue generation in FY24 and positive EBITDA by FY27. Current projections suggest a delay, with high-volume production not expected until FY25 [14]. - Assuming QuantumScape achieves an EBITDA target of approximately $1.6 billion by 2030, the enterprise value could reach around$19.5 billion, translating to a target share price of approximately $39 [16].