Author: Wilmot, Stephen
Wall Street Journal (Online) ; New York, N.Y. [New York, N.Y]. 25 Aug 2021.
QuantumScape's battery research has produced some promising test results, but details of its technology have been limited. PHOTO: Nicholas Albrecht for The Wall Street Journal
This column is part of the Heard on the Street Stock Picking Contest. You're invited to play along with us here .
As a black-box company in a technical industry, battery startup QuantumScape was always an unlikely investor darling. Chances that it can revive the early hype around its early-stage technology seem slim.
The company, which went public last fall via a special-purpose acquisition company, says it has hit on a wonder material that could, based on initial testing, enable the manufacture of "solid state" batteries with pure lithium anodes. This would be a breakthrough innovation, extending battery range, supporting fast charging and reducing costs. Electric vehicles might finally be as cheap and easy to fill with power as today's gas ones.
QuantumScape became a stock-market sensation , with a strong following among individual investors. Valued at $3.3 billion in the deal that brought it to market, the company reached a peak enterprise value of more than $30 billion as 2021 dawned, according to FactSet (more, factoring in stock options and other forms of share issuance).
A steadily falling share price has since brought that number back to about $7.3 billion. Even that is out of kilter with peers. Solid Power, another solid-state startup, agreed to merge with a SPAC in June at an enterprise value of $1.2 billion . British peer Ilika is capitalized at less than $300 million.
The difference can only be justified if QuantumScape really has found the holy grail of battery research. This isn't clear. The company hasn't disclosed details of the revolutionary ceramic material at the heart of its cell design, making it impossible for scientists to verify. The test results it has published are promising as far as they go, but that isn't far.
After years of secrecy, the newly public company said in December that the single-layer cells it tested through repeated charges and discharges retained more than 80% of their power even after 800-plus cycles, implying they could be driven hundreds of thousands of miles. It also said they performed at very low temperatures, and could be recharged to 80% of their power in under 15 minutes. These are impressive numbers, but old industry hands cautioned that achieving the same results with multiple layers of electrodes—an essential step toward making batteries big enough to power cars—would be tough.
Since then, the company has focused on increasing the layer count, first to four layers and then 10. A tweet Wednesday showed that its four-layer cells retained their power for 800 cycles under test conditions. The company hasn't given updates on low-temperature operation or fast charging.
In April, activist short seller Scorpion Capital accused QuantumScape of running a "pump and dump SPAC scam," which the startup's chief executive has denied. Even battery experts who give the company's reports the benefit of the doubt say it faces massive hurdles at the manufacturing stage and that its timeline is wildly ambitious. QuantumScape wants to enter commercial production some time in 2024 or 2025.
Some investors might be comforted by the backing of Volkswagen. In reality, the German automotive giant's ongoing support may say more about the strategic priorities of Chief Executive Herbert Diess , a big fan of electric vehicles, than about QuantumScape. VW also got in cheap: It paid $300 million in various installments for a 17.7% stake, implying an equity value of $1.7 billion.
Factoring in stock options, QuantumScape's "diluted" equity value is now $10 billion. It is a lot to take on little but hope and trust.
Write to Stephen Wilmot at firstname.lastname@example.org
Why the Hype Around Battery Startup QuantumScape Is Discharging