Early in its existence, battery technology company QuantumScape(NYSE: QS) made a strategic decision that is beginning to pay off. The company had its sights set on developing an electric vehicle (EV) battery that solved many concerns that continue to impede growth in the sector.
QuantumScape established a strategic relationship with global automotive giant Volkswagen that included early stage investments, representation on QuantumScape's board, and a joint venture (JV) partnership.
Now, a unit of Volkswagen has confirmed the performance of QuantumScape's first battery cell submission for proof of concept. The details could be game-changing for the industry.
EV requirements exceeded
Currently, lithium-ion batteries used for EVs typically use graphite anodes. QuantumScape is aiming to improve the energy density provided by most common EV batteries to improve charge retention, battery life, and fire safety.
QuantumScape's work on solid-state battery technology has progressed from single cell, to multi-cell layers, and ultimately the 24-layer cells needed for commercial EV use. After many years of research and two years of laboratory development work, QuantumScape shipped its first 24-layer prototype battery cells to customers in December 2022.
Last week, PowerCo, a battery unit of Volkswagen, revealed its first test results, and EV investors were thrilled to see they exceeded expectations. After reporting that the test cells achieved over 1,000 charging cycles while retaining more than 95 percent capacity, QuantumScape stock soared by 43% in a single day. That far exceeded QuantumScape's target of 80% retention over at least 800 cycles for a commercially viable product.
In practical terms, that means that an EV could be in service for more than 300,000 miles while retaining almost all of its original charging capacity. Users would enjoy continued fast charging (defined by QuantumScape as 10% to 80% charge in about 15 minutes) and not need battery replacement over an extremely long vehicle life.
A solution for EV range anxiety
QuantumScape's "solid-state" solution to improve EV batteries is to substitute anode-free lithium metal for the graphite currently being used. A successful, commercially viable product would address some of the issues that cause range anxiety. Many sector observers see the slowing growth in EV sales coming from practical concerns related to charging time and availability.
That makes the recent results from PowerCo major news. PowerCo CEO Frank Blome summed it up: "The final result of this development could be a battery cell that enables long ranges, can be charged super-quickly and practically does not age. We are convinced of the solid-state cell and are continuing to work at full speed with our partner QuantumScape toward series production."
QuantumScape investment case
Yet challenges remain, including successfully getting to that series production point. An important factor for the investment case is the path to scale up the manufacturing process. QuantumScape has been working on implementing a next-generation heat treatment process at its early stage production facility.
The company itself noted in its third-quarter report that it needs to continue to work on adding process automation and "defect reduction and quality improvement initiatives." But it believes it has the necessary plan and funding in place to get to its goal of commercialization.
It ended the third quarter with $1.1 billion in liquidity and expects that cash will get the company into 2026. But investors should realize it's likely that commercialization won't happen that soon. Certainly, profitability would be a long shot in that time frame at this point. That means that further capital raises are likely, which would likely negatively affect the stock.
Still, the latest news is a giant first step for the company and its technology. Those considering investing should watch for the progress that the company has made at its pilot line production facility when it reports fourth-quarter results. The stock should be considered a speculative play, with much more data from test results needed and potential headwinds to come.
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Howard Smith has positions in QuantumScape. The Motley Fool has positions in and recommends Volkswagen Ag. The Motley Fool has a disclosure policy.
