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Quantumscape Corp

Recommendation: Speculative Buy

Entry Date Symbol Recommendation Entry Price (USD) Target 1 (USD) Target 2 (USD) Holding Duration Potential Upside*
6 Nov, 24 QS Speculative Buy USD 5.2 USD 5.6 USD 6.05 50 days 16.3%

*Potential Upside (%) indicates the expected percentage increase from the Entry Price to the Target 2 Price.

Fundamentals

  • Previous Close 4.16
  • Market Cap2675.10M
  • Volume4473000
  • P/E Ratio-
  • Dividend Yield-%
  • EBITDA-470.58000M
  • Revenue TTM0.00000M
  • Revenue Per Share TTM-
  • Gross Profit TTM 0.00000M
  • Diluted EPS TTM-0.95

Data Powered by EOD Historical Data (“EODHD”).

Company Overview

QuantumScape Corporation, a research and development stage company, focuses on the development and commercialization of solid-state lithium-metal batteries for electric vehicles and other applications. The company was founded in 2010 and is headquartered in San Jose, California.

Key Positives

Extended Cash Runway: The agreement with PowerCo, including the royalty prepayment, extends QS’s financial runway through 2028

Partnership Expansion: The collaboration with PowerCo aims to scale production up to 80 GWh, boosting production capacity

Key Negatives

Pre-Revenue Firm

Revised Financial Forecast: QS has updated its full year forecast for Adjusted EBITDA loss to USD 280 Mn and USD 300 Mn, largely due to higher legal fees and settlement accruals

Key Investment Risks

Technology Development Risks, Production Scaling Challenges, Market Adoption and Demand Uncertainty, and macro uncertainties

Recommendation Summary

Technical Summary

Entry Price Support* Target 1 Target 2
5.2 4.35 5.6 6.05

Data Source: REFINITIV, Analysis: StockNextt

*Support can be considered as an indicative stop-loss, and if prices move below that level on closing basis individuals may evaluate exiting the position depending on their risk appetite, previous holdings, and other factors considered. The support and resistance levels may need to be re-evaluated within 4-6 weeks’ time frame depending on the stock price movements from the date of recommendation on the stock.

Key Reasons for Speculative Buy

·Process Update: QS has successfully integrated Raptor, its cutting-edge separator production process, into its baseline production operations. This process represents a significant improvement over previous-generation technology, offering enhanced film quality, performance, heat-treatment time, and energy efficiency. QS anticipates that Raptor will continue to support the QSE-5 sample output into 2025, playing a key role in the company's separator production goals. In addition to enabling B sample production, Raptor also serves as a learning platform and an important transitional step toward the Cobra process.
·Transition to Cobra Process: QS sees the Cobra process as the most viable pathway to achieving gigawatt-hour scale separator production. The company is preparing for Cobra production to enter its baseline operations by 2025. The heat treatment equipment required for Cobra is expected to be in place by the end of 2024. With the addition of higher-volume downstream automated equipment, the Cobra process will enable a substantial increase in separator production capacity, further advancing QS’s production capabilities.
·Collaboration with PowerCo: QS has formed a strategic partnership with PowerCo, designed to provide a capital-efficient approach to scaling its QS solid-state technology platform. The collaboration features a joint scale-up team of approximately 150 people, combining QS’s advanced technology development with PowerCo’s expertise in industrialization and manufacturing. Under the agreement, PowerCo will receive a non-exclusive license based on the QSE-5 platform, funding the associated capital and operational expenditures. This collaboration is expected to reach a production capacity of up to 80 GWh, which is nearly four times the capacity of QS’s previous joint venture with Volkswagen Group. Additionally, PowerCo will provide a USD 130 million royalty prepayment, contingent upon the successful progress of technical milestones.
·Extension of Cash Runway: QS has extended its cash runway forecast by 18 months, now projecting a cash runway through 2028. This extension is largely driven by the agreement with PowerCo, which has freed up USD 134 million previously earmarked for the joint venture and secured a USD 130 million royalty prepayment. This collaboration has enhanced QS's capital position, bringing in additional resources and a skilled team, while also driving operational efficiencies. Furthermore, any additional capital raised through the capital markets, including under QS's ATM prospectus supplement, will further extend the company’s financial runway.
·Separator Production Roadmap: QS’s separator production roadmap focuses on achieving faster, more energy-efficient production with a smaller physical footprint. Central to this strategy is the development of heat treatment equipment designed to expedite the separator production process. This equipment will facilitate low-volume QSE-5 production in 2024 and provide a valuable learning platform for the Cobra process. With Cobra equipment expected to be installed by the end of 2024, QS is positioned to transition to higher-volume QSE-5 production in 2025, laying the foundation for future gigawatt-hour scale production.
·Financial Performance in Q3: In the third quarter, QS incurred capital expenditures of USD 17.9 million, primarily related to equipment for low-volume QSE-5 prototype production and preparations for the Cobra process. The company reported GAAP operating expenses of USD 130.2 million and a net loss of USD 119.7 million. The Adjusted EBITDA loss for the quarter was USD 71.6 million, in line with expectations. At the end of the third quarter, QS’s liquidity stood at USD 841 million.
·Revised Full-Year Financial Outlook: QS continues to track toward its full-year guidance for Adjusted EBITDA loss, with an updated forecast now ranging from USD 280 million to USD 300 million, primarily due to increased legal fees and settlement accruals in 2024. Capital expenditures for 2024 have been revised to between USD 60 million and USD 75 million, reflecting efficiencies from the PowerCo agreement, operational savings, and a shift in the timing of certain payments into 2025.

Considering the decent fundamentals, associated risks, extended cash runway through 2028, Cobra process on track for 2025, and current valuation, a "Speculative Buy" recommendation is given on the stock at the closing market price of USD 5.20, November 05, 2024.

Key Financials in Pictures

Income Statement

Balance Sheet

Change in Cash

Total Operating Cash

Dividends Paid

Data Powered by EOD Historical Data (“EODHD”).

Peer Comparison

Sector: Consumer Cyclical Industry: Auto Parts

Company Change (USD) Price (USD) Trailing PE (x) Forward PE (x) Price Sales TTM (x) Price to Book Value (x) Enterprise Value to EBITDA (x)
QS
Quantumscape Corp		 -0.035 0.84% 4.12 - - - 2.41 -7.2191
DNZOY
Denso Corp ADR		 -0.06 0.48% 12.38 18.99 12.36 0.0067 1.23 0.0064 0.05
DNZOF
DENSO Corporation		 - -% 12.35 19.14 12.89 0.0064 1.28 0.0065 0.05
APTV
Aptiv PLC		 0.07 0.12% 59.57 11.14 14.56 1.24 2.27 1.50 11.76
BRDCF
Bridgestone Corporation		 - -% 42.48 11.70 11.93 0.0056 0.97 0.84 4.33

Data Powered by EOD Historical Data (“EODHD”).

Disclosures:

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is September 05, 2024. The reference data in this report has been partly sourced from REFINITIV.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.
Target: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Target 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Target 2 may act as the crucial resistance level for the stock.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer :
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