If you had invested $2000 in QuantumScape in 2020, this is how much you would have today

QuantumScape (NYSE: QS)developer of solid-state batteries, went public through a merger with a special purpose acquisition company (SPAC) on November 27, 2020. Its stock opened at $24.80 and rose to a record high of $131.67 on December 22.

But today, QuantumScape shares are trading at just $7. A $2,000 investment in the stock on day one would have briefly risen to over $10,600 before disappearing to around $560 today. Let’s see why the bulls initially fell in love with QuantumScape, why they retreated, and whether the stock has a chance to revisit its all-time highs.

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Why QuantumScape Shares Soared in 2020?

QuantumScape develops solid-state batteries powered by solid electrolytes instead of the volatile liquid electrolytes used in lithium-ion batteries. This difference makes solid-state batteries more tolerant of higher temperatures and less prone to fires.

Solid-state batteries are already widely used in pacemakers, wearables and small radio frequency identification (RFID) products, but they have not replaced lithium-ion batteries in smartphones or electric vehicles (EVs) because they are less durable, less dense and more expensive.

QuantumScape wants to fill this gap by developing a new generation of solid-state batteries that can replace lithium-ion batteries in electric vehicles. The company is already developing a solid battery that could revolutionize the EV market with a range of 650 km and a charging time of just 15 minutes. Its main investor is the car giant Volkswagenwhich began working with the battery maker more than a decade ago.

QuantumScape’s plans sound promising, but they are not yet commercialized products. During its pre-merger presentation, the company said it could begin commercializing its products in 2024 and grow its revenue at a compound annual growth rate of 363% from $14 million in 2024 to $6.44 billion in 2028. It also declared its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) will turn positive by 2027.

Those bullish valuations attracted a bull rush, and its market capitalization peaked at $47.8 billion at the end of 2020, even though it has yet to generate any revenue. Crazy buying of growth stocks and memes boosted those gains.

Why did QuantumScape’s stock fall over the next three years?

QuantumScape shares subsequently fell 95% for three reasons. First, rising interest rates drove investors away from speculative pre-earnings companies. Second, the broader EV market cooled and clipped the wings of many high-flying EV stocks.

Finally, QuantumScape lost more money than it originally anticipated. Back in its pre-merger presentation, the company projected it would report an adjusted EBITDA loss of $102 million in 2022 and $114 million in 2023. But in reality, it reported an adjusted EBITDA loss of $249 million in 2022 — and analysts expect an even bigger loss of $280 million in 2023.

It is also expected to generate negative free cash flow (FCF) of $137 million in 2022 and $169 million in 2023. But it actually reported negative FCF of $377 million in 2022, and analysts expected negative FCF of $314 million dollars in 2023.

Can QuantumScape stock revisit its all-time highs?

On the bright side, QuantumScape still ended its most recent quarter with $1.13 billion in cash, cash equivalents and marketable securities, while its low debt-to-equity ratio of 0.1 gives it plenty of room to raise fresh cash. The company also says it’s still on track to start shipping its first low-volume samples in 2024 and high-volume samples in 2025.

For now, analysts expect QuantumScape’s revenue to reach just $2 million in 2024 and $15 million in 2025. Based on a current enterprise value of $2.54 billion, its stock still looks ridiculously expensive at 169 times its 2025 sales. But if it can successfully ramp up production over the next few years, it could potentially reach its lofty valuations.

However, I don’t think QuantumScape will revisit its all-time highs anytime soon. Its rally in late 2020 was largely driven by the stimulus-induced frenzy of buying meme stocks, rather than the underlying value of its business. It’s still a speculative stock at these levels — but it could be a potential multiplier over the next few decades if it proves the bears wrong.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Volkswagen Ag. The Motley Fool has a disclosure policy.

If You Had Invested $2,000 in QuantumScape in 2020, Here’s How Much You’d Have Today Originally Posted by The Motley Fool

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