QuantumScape & The Wonderful World of EV Opportunity

The world is becoming enthralled by the impending automotive takeover by exploding electric vehicle (EV) giants like Tesla (TSLA), Nio (NIO), and Nikola (NKLA), with their public shares illustrating enormous outsized returns in 2020. In the wake of the highest-profile pandemic in recent history, the EV market has never been more electrified than it is today.

I discuss the EV market’s potential in more detail in my latest piece: The EV Revolution Spells Opportunity.

There is an enormous amount of optimism in this space, and retail investors have been aggressively buying into EV stocks with seemingly no regard for valuation. At this point, TSLA shares have priced in world domination of the automotive market (doubling the market cap of the world’s second-largest automaker, Toyota). You better believe that automotive giants like Toyota (TM), Volkswagen (VWAGY), Ford (F), and GM (GM) aren’t going to sit idly by and watch these young tech start-ups take over an industry they had spent decade if not a century to establish.

Today I discuss a battery business that is poised to prosper no matter the level of competition in the broader EV space.

QuantumScape 

QuantumScape is releasing its shares to the public through an obscure special purpose acquisition company (aka SPAC) merger, which has become an increasingly popular way to IPO in 2020. The SPAC they are utilizing is called Kensington Capital Acquisition (KCAC), and the ticker will be changed to QS when the merger is complete.

What’s a SPAC?

A special purpose acquisition company is an investment group that IPOs with the “promise” of purchasing an enterprise at some point in the future. There has been more than $33 billion raised so far this year, which I see as a signal of excess in the market.

The most notable SPAC IPOs have been Virgin Galactic (SPCE) and Nikola (NKLA), both of which saw massive volatility, from their initial surges out of the gates to their drop off in the months following. There have been other recent SPAC IPOs with shares that have been successful (for now), like sports betting giant Draftkings (DKNG), which has surged almost 500% since the beginning of 2020.

I still believe that there is an inherent level of frothiness associated with these obscure investment vehicles.  

The Business

QuantumScape is driving the innovative-curve for the next cutting-edge batteries, the heart and soul of the electric vehicle space. The Bill Gates-backed EV battery supplier is developing the next generation of batteries utilizing lithium-metal, which has a significantly higher energy density than lithium-ion.

This forward-looking battery powerhouse is driving the EV revolution with mass-market adaptation in QuantumScape’s sights. Leveraging lithium-metal technology, the company hopes to achieve ranges of 300 miles or more, hyper-fast charging (less than 15 minutes), cheap vehicles (less than $30k), and extended battery life (more than 150,000 miles).

QuantumScape sees the entire automotive industry as its total addressable market at more than $450 billion in potential battery demand. Society is undoubtedly headed toward a world that runs on electricity, but it may take a decade before mass adaptation in the automotive world is feasible.

There is an enormous amount of uncertainty surrounding this next-generation battery enterprise, considering they are just in the product development stage. Still, the markets are optimistic about this business’s future, with an expected $3.3 billion valuation, when QS hits the public exchanges.

According to QuantumScape’s 8-year plan, it doesn’t expect to generate revenue until 2024 and won’t be able to drive positive free-cash-flows until 2028. The automotive giant Volkswagen (VWAGY) is the primary shareholder, giving investors confidence in the business’s legitimacy.

Final Thoughts

I do not doubt that QuantumScape will be a significant player in the next decade of EV development. I also do not doubt that overzealous retain investors will run this stock up beyond its intrinsic value right out of the gates.

This stock has a decade-long plan that I want to be a part of eventually, but I will wait for the initial hype to die down and see the company achieve at least a couple of its manufacturing goals in its 8-plan to profitability.

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Volkswagen AG (VWAGY): Free Stock Analysis Report
 
Tesla, Inc. (TSLA): Free Stock Analysis Report
 
Toyota Motor Corporation (TM): Free Stock Analysis Report
 
Virgin Galactic Holdings, Inc. (SPCE): Free Stock Analysis Report
 
Nikola Corporation (NKLA): Free Stock Analysis Report
 
NIO Inc. (NIO): Free Stock Analysis Report
 
Kensington Capital Acquisition Corp. (KCAC): Get Free Report
 
General Motors Company (GM): Free Stock Analysis Report
 
Ford Motor Company (F): Free Stock Analysis Report
 
DraftKings Inc. (DKNG): Free Stock Analysis Report
 
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