The future of battery technology is a slender sheet of ceramic material that’s pliable enough to bend between two fingers. QuantumScape (NYSE:QS) claims to have the secret recipe for a next-generation battery that can boost the range of an electric car by as much as 50% and reduce charging time to less than 15 minutes. It has been tight-lipped about how. And while QuantumScape is a company with fewer than 250 employees making a non-commercial technology that hasn’t made it into a single electric vehicle (EV), it’s valued at an eye-opening $11 billion. That’s after QS stock fell almost 80% from a high of $130 last December.

Can anyone really make a solid state battery? If so, when? And with QuantumScape stock down to a more reasonable valuation, is now the time to buy?

Here’s a closer look. 

QS Stock and the Art of EV Alchemy 

Founded by Stanford University scientists a decade ago, and backed by Volkswagen AG (OTCMKTS:VWAGY), Microsoft (NASDAQ:MSFT) and Bill Gates himself, QuantumScape became a public company last November after merging with Kensington Capital Acquisition Corp. Kensington Capital is a SPAC (special-purpose acquisition company).

QS was backed by promising data, but has no commercial product and zero revenue. It’s easy to understand investors’ fanatical interest in EV battery technology. After all, EVs are one of the few products whose adoption is limited by battery performance. The promise of new solid-state batteries is alluring: faster charging, better energy-storage capacity and longer life.

If batteries could deliver these benefits, EVs could take more market share, faster, from cars with internal combustion engines.

Fueled by magical thinking, QuantumScape’s valuation skyrocketed from $3.3 billion when the deal was announced in September to over $33 billion only a month after its public debut. The shift was so dramatic that it briefly surpassed Ford (NYSE:F). Just to give you some perspective on the insanity, Ford sold more than half a million cars and trucks in the U.S. in that same quarter.

But QS stock didn’t spend much time in the stratosphere. Following an April short report by activist firm Scorpion Capital, which called the company a “scam,” QuantumScape stock fell back down to earth. Shares now trade around $28 — down 80% from their peak. 

Welcome to the SPAC Jungle

In many ways, the QuantumScape story is nothing new. It’s seemingly just one of a handful of crash-and-burn SPAC IPOs in an overheated electric vehicle sector.

Until last year, going public before delivering a purchasable product was pretty unusual in the automotive world. But no longer. Today, the EV space is rampant with pre-revenue upstarts trading at head-scratching valuations, ranging from carmakers Lucid Motors, Nikola (NASDAQ:NKLA) and Fisker (NYSE:FSKR), to name a few. QuantumScape is also just one of a slew of overpromising, under-delivering SPACs to meet their (market) maker.

For example, EV truck-maker Lordstown Motors (NASDAQ:RIDE) imploded earlier this week, and Nikola and Canoo (NASDAQ:GOEV) have both been targeted by short sellers. Oh, and don’t forget the extra salt in the fresh wound here — the Securities and Exchanges Commission is currently investigating RIDE and NKLA.

The SPAC jungle is about as far from Paradise City as you can get.

But… If It’s Real, It’s Revolutionary

However, there is one way QuantumScape may stand apart from the quickly expanding graveyard of failed EV startups. If Chief Executive Officer Jagdeep Singh’s team of scientists have succeeded with their revolutionary design, they will have pulled off an astronomical feat.   

Today’s batteries generally have liquid electrolytes — the medium that allows the charge to travel between a cathode and anode. Typically, the electrodes are solid graphite. But QuantumScape claims to have developed a proprietary material that it can use to make solid-state batteries that will replace the current carbon or silicon anodes with lithium-metal anodes. In other words, these “solid-state” batteries are more energy-dense. They can provide a much longer range without the need to recharge. They can recharge faster compared to the current batteries. And, in theory, they have significantly lower production costs.

Several battery startups, including Ionic Materials, Sila Nanotechnologies, Sion Power and Solid Power, are developing all-solid-state batteries (ASSBs). Each of these are expected to be safer and more energy-dense than the lithium-ion products used in today’s EVs and battery systems. Yet, QuantumScape has been the center of attention since the speculation that Apple (NASDAQ:AAPL) could team with Volkswagen to build the Apple iCar. For context, Volkswagen owns 13% of QuantumScape.

If the two companies team up, QS could become the company’s go-to EV battery supplier. 

QuantumScape Endures a Scorpion’s Sting

QuantumScape tells a compelling story. The trouble is that secrecy runs high in the battery industry. That means there’s very little data to substantiate the company’s claims.

To be fair, QuantumScape’s batteries (like those of its peers) have only been tested in labs so far. And because there’s no independent verification of claims, industry-wide comparisons are virtually impossible. In fact, QuantumScape even required a photographer to use a color-shifting filter before capturing images of its technology, just in case the material’s true hue revealed any part of its secret recipe.

This combination of hype and mystery is catnip for short sellers. So when Scorpion Capital issued its damaging report, the market took notice. Scion called QuantumScape’s test results “cherry-picked” and not industry standard. Essentially, Scorpion suggested that the technology really isn’t viable.

Indeed, Quantum’s technology is still new and the company doesn’t expect to start pilot production of its batteries until 2024. Volume sales aren’t expected until 2026 or 2027. In five years, “the company expects to have a production capacity of 6 GWh (gigawatt hours), which would be enough to support around 60,000 vehicles.” And it might take a year from there to achieve positive EBITDA.

Half-Baked Tech

Investors hoping to get a sense of the viability of the technology will have to wait a few years. And, the company itself clearly has its work cut out for it. It’s a long haul to commercial production — including creating EV-sized batteries and scaling up manufacturing.

There are several other technical factors that the company needs to work on as well before its product is ready for use. Most importantly, QuantumScape has only produced single-layer cells. To meet the needs of a working EV, it needs to find a way to stack more than 100 on top of each other to create a battery package. Yet, in its most recent quarterly letter, QuantumScape shared encouraging results and reiterated expectations of starting commercial production in the 2024-2025 timeframe.

When In Doubt, Buy Ford Rather Than QS Stock

With just under 19% of the float short, QuantumScape has plenty of doubters. But even assuming QuantumScape’s forecasts prove accurate, the valuation is still hard to get your head around. At today’s market capitalization of just under $11 billion, QS stock is trading at 3.4x 2027 revenue. Volkswagen (QuantumScape’s biggest customer) and Ford both trade at 0.5x forward sales.

With the jury still out as to whether QuantumScape can achieve its solid-state battery breakthrough, perhaps the best way to play the speculative solid state battery space right now is simply to buy Ford stock. Ford is also a derivative play on QuantumScape competitor Solid Power (Ford is an early investor), which is said to be in talks to go public through a SPAC merger with Decarbonization Plus Acquisition Corp. III (NASDAQ:DCRC). Ultimately, an incumbent automaker with skin in the game trading at a reasonable valuation makes for a better/risk reward.

Your comments and feedback are always welcome. Let’s continue the discussion. Email me at jmakris@investorplace.com.

On the date of publication, Joanna Makris did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joanna Makris is a Market Analyst at InvestorPlace.com. A strategic thinker and fundamental public equity investor, Joanna leverages over 20 years of experience on Wall Street covering various segments of the Technology, Media, and Telecom sectors at several global investment banks, including Mizuho Securities and Canaccord Genuity.

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