Where there’s disruption, there’s opportunity. Arguably one of the biggest disruptions over the next decade will be the shift from less-effective liquid batteries to far more robust solid-state batteries. At the forefront of this disruption is battery maker QuantumScape (NYSE:QS). On that basis alone, QS stock is a strong long-term buy, with the idea being that as solid-state batteries take over the world, QuantumScape will turn into the biggest battery supplier in the world.
That long-term bull thesis got a huge boost in mid-February when QuantumScape provided a quarterly earnings update.
In it, management affirmed the company’s technology lead in making solid-state batteries, explained very clearly the next steps in the experimentation process, laid out a clear plan for production ramp in the coming years, and confidently restated that the company has more that enough money to fund operations until commercialization.
It was a very positive update on all fronts. It’s no surprise, then, that QS stock jumped more than 13% after the update, even against the backdrop of a red market. This continues what has been a newfound uptrend in QS stock since early February, when shares were trading around $40. QuantumScape stock is up almost 50% since then.
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This new uptrend in QS stock will persist in the near-term. Long-term, this stock will end up being one of the biggest winners on Wall Street.
QS Stock: Strong Earnings Update
QuantumScape has no commercial operations yet. This is basically a research company that is pioneering a breakthrough technology which management hopes to commercialize in the early 2020s.
So, as opposed to reporting quarterly earnings with revenue and profit numbers, QuantumScape provides quarterly earnings updates with respect to the company’s technological progress, commercialization ramp and financial health.
In its first such earnings update as a public company, QuantumScape impressed.
On the technology front, QuantumScape reaffirmed its head-and-shoulders lead in making effective solid-state batteries. The biggest problem therein is power density, since at high rates of power, solid-state batteries tend to fail from dendrites (needle-like crystals of lithium metal that can grow across the separator and short-circuit the cell).
But QuantumScape’s recent battery technology overcomes that fatal flaw of traditional solid-state batteries. That is, recent data shows that the company’s solid-state separators can work at very high rates of power (enabling a 15-minute charge to 80% capacity) without risking dendrite formation.
That’s huge. It means that QuantumScape is playing in the NBA, while everyone else here is stuck playing high school hoops. The technology difference is that big.
Meanwhile, QuantumScape also laid out a clear path forward. The company plans to next test multilayer cells in 4-, 8- and 10-layer stacks (the first tests were done with single layer cells). Management also plans to build a pre-pilot facility in San Jose, called QS-0, with capability of building over 100,000 engineering cell samples per year by 2023.
Of equal importance, QuantumScape stressed that the company now has enough cash (over $1 billion on the balance sheet) to fund operations without liquidity risks for the next 4 to 5 years (or until commercialization).
Overall, it was a great update from a great company. It’s no wonder QS stock popped so much.
QS stock has now rallied nearly 50% in just over two weeks.
That’s a big rally, and it speaks to the fact this stock is recapturing some of the momentum it lost in late 2020.
QuantumScape impressed the world in December when it announced data for its battery technology which basically proved that the company had solved the dendrite problem in solid-state batteries. QS stock flew like a rocket ship after that data was released. But a secondary offering and some bearish commentary from short-sellers killed its rocket-ship rally, and shares retreated rapidly in early 2021.
Then Adam Jonas over at Morgan Stanley — the man who presciently called the EV Revolution before anyone else and was an early Tesla (NASDAQ:TSLA) bull — initiated coverage on QS stock with a very bullish tone and $70 price target.
Then management delivered a very positive quarterly business update.
And now, QS stock is back on a solid uptrend.
With this solid news flow in the pipeline, I fully expect QuantumScape stock to maintain recent momentum for the next few months.
Huge Long-Term Upside
The near-term uptrend in QS stock is just beginning. The long-term potential here is enormous.
QuantumScape plans to sell its batteries in 100KWh packs, for about $7,000 per pack, and at about 30% gross margins.
Roughly 60 million new passenger cars will be sold this year. Thanks to population growth and urbanization, that number will grow to 75 million by 2030. Let’s say EVs – which comprise less than 5% of total new car sales today – rise to 35% penetration. Let’s also say about one-fifth of those EVs feature solid-state batteries, and that QuantumScape leverages superior tech to control about half of the solid-state auto battery market.
The math there implies $18-plus billion in revenues for QuantumScape by 2030, with gross profits of $5.5-plus billion. My numbers suggest that could flow into $4 billion in net profits.
Based on a 25X multiple, that implies a potential future valuation for the company of $100 billion. The current market cap sits right around $20 billion.
Bottom Line on QS Stock
Solid-state batteries are the future. Whoever pioneers this future will inevitably turn into a giant company.
When it making solid-state batteries, QuantumScape is a star in the NBA, and everyone else is trying to make their high school roster. The difference is that big. In term of technology. In terms of talent. And in terms of resources.
That’s why QS stock is one of my favorite stocks to buy for the long haul.
P.S. Speaking of stocks with long-term potential, I like to say that where there’s disruption, there’s opportunity. And there’s a massive opportunity happening right before our eyes.
Remember how Jeff Bezos looked at the state of the retail market, and he created Amazon.com in response? Yes, this opportunity is that huge.
As you know, I don’t make stock picks on a whim. I spend countless hours analyzing them, creating models, and measuring their long-term potential. It’s how I got to be America’s No. 1 stock picker, according to TipRanks.
So believe me when I tell you that there’s a stock out there that could very well become “the next Amazon.”
I’ll continue to tell you more about this hypergrowth opportunity over the next week and, on Feb. 23, at 4pm EST, I will reveal its industry, name, and ticker symbol… for free.
Mark the date on your calendars, folks!
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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