QuantumScape is developing EV batteries that could offer a range of benefits relative to those in use now.
Courtesy QuantumScape
QuantumScape, the company seeking to develop a new kind of battery for electric vehicles, picked up a new rating on Wall Street. The business is worth billions of dollars, but little upside may be left in the stock, according to Baird.
Analyst Ben Kallo launched coverage of QuantumScape (ticker: QS) on Thursday. “The positive product tests to date, experienced management team, strong balance sheet …and large TAM have us optimistic,” wrote Kallo, referring to total addressable market. “However, we look to see more positive proof points before becoming more constructive.”
For now, he rates the shares at Hold. His target for the stock price is $52, implying a modest gain. Still, at that price QuantumScape would be worth about $23 billion. That is enough to make the start-up one of the most valuable auto suppliers on the planet.
The concept of TAM is popular on Wall Street as a way to assess the size of the opportunity for any company’s products. Kallo estimates the TAM for EV batteries could reach $1 trillion by 2040, up from $23 billion in 2020.
That’s about 21% average annual growth for a generation, which implies EVs will eventually replace gasoline-powered cars. QuantumScape could play a role in that. The company is pioneering solid-state, lithium anode batteries that promise lower cost, better safety, faster charge times, and better range per charge. They sound like a panacea, but so far, they have proven very difficult to make.
QuantumScape has produced some impressive data and is scaling up its manufacturing and testing efforts this year. Continued progress with its development plans could yield the “positive proof points” Kallo said he wants to see.
Kallo covers a host of renewable-energy stocks, including Tesla (TSLA). He is more bullish on the EV giant, rating the stock at Buy, with a target of $736 for the stock price.
With Baird, three brokers cover QuantumScape stock now. There is one Buy rating and two Holds. There was one Sell, but Bernstein analyst Mark Newman recently left the broker, nullifying that rating. The average target for the stock price among the three remaining analysts is about $59.
QuantumScape stock has been on a wild ride. Shares are up more than 115% over the past six months, but they are also down more than 60% from their 52-week high of about $133. Shares rose from roughly $24 to $130 over the span of a month before settling down between $40 and $50 a share.
The stock was at $49.25 in premarket trading on Wednesday, for a gain of 1.7%. The shares fell more than 11% Wednesday as concern about inflation hit shares of high-growth companies. Higher inflation means higher interest rates, which reduce the current, discounted value of future earnings. High-growth companies are expected to earn a bigger share of their profits further in the future, so they take a bigger hit than more established firms.
QuantumScape doesn’t expect to have significant sales for years. It is still developing its batteries.
Inflation fears are hitting high-growth stocks. Futures on the Nasdaq Composite, home to many growth stocks, were down 0.2% after falling 2.7% Wednesday. The Dow Jones Industrial Average and S&P 500 futures are holding up better.
Write to Al Root at [email protected]
