What’s the secret to finding mega-winner stocks like Amazon and Nvidia before they soar? It’s not a secret. You just need to spot a company that’s uniquely positioned to capitalize on a real opportunity before most other investors do the same.
Problem? It’s much easier said than done. For every Amazon and Nvidia out there, there are also a bunch of high-profile implosions like AOL (and then Yahoo!), BlackBerry, and Groupon. Not every well-touted ticker lives up to the hype. The company in question must truly offer a game-changing product or service, but it’s not always clear if and when they do. When they do, however, then wow!
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With that as the backdrop, risk-tolerant investors on the hunt for a prospective mega-winner might want to put QuantumScape(NYSE: QS) on their radar if not in their portfolio. This company may be on the verge of getting electric vehicles over one of their tallest hurdles.
Never heard of QuantumScape? Don’t sweat it. The company’s $2.5 billion market cap doesn’t turn many heads. It’s also a pre-revenue company, deterring even more investors.
Nevertheless, there’s enough potential here to merit a look.
In simplest terms, QuantumScape designs and manufactures superior lithium batteries. It’s not exactly a new science. Lithium-based batteries have been found in most common consumer electronics for years now. Tesla‘s very first car — the Roadster — also used lithium-ion batteries when it first began production back in 2008. With automobile manufacturers recognizing this material’s energy-storage capacity was necessary to make EVs viable, nearly every electric vehicle made since then has followed suit. And for most EV owners most of the time, these batteries are adequate.
Anybody keeping their finger on the pulse of the electric vehicle movement, however, likely knows sales growth is slowing. Although the market itself is still expanding, J.D. Power’s Autovista24 reports sales growth of battery-powered cars and plug-in hybrids slowed to a pace of 22% during the first half of this year, down from the year-earlier growth rate of 35%.
The still-young industry was hoping for acceleration at this stage of the game.
Causes for this headwind include high upfront costs, a lack of fast-charging infrastructure, and poor battery life. Perhaps more than anything, though, would-be EV owners worry about a limited driving range on a single charge without a convenient recharging option at their destination.
QuantumScape’s technology addresses all of these concerns.
It’s called a solid-state battery. The term doesn’t mean much to the average consumer, or even a prospective electric vehicle owner. But it should. QuantumScape says its solid-state lithium batteries not only store and then deliver more power, but can do so for longer than the typical lithium-ion battery used in electric vehicles does today.
The numbers: Electric vehicles that can be driven 350 miles on a single charge of a common lithium-based battery pack can be driven between 400 and 500 miles using one of QuantumScape’s solid-state batteries. They’re also capable of faster charging without damage (up to 80% capacity in 15 minutes or less). Perhaps most important, testing of QuantumScape’s batteries suggests they’ll still be able to hold a 95% charge even after 1,000 charges. That’s roughly 300,000 miles’ worth of usage.
As was noted, the company hasn’t commercialized anything yet. It’s close, though. Just last month it began deliveries of its latest prototype to EV manufacturers. Volkswagen has already committed to a partnership with QuantumScape, in fact, even before the commercial version of its battery design is finalized. It’s also encouraging to QuantumScape shareholders that last month Tesla CEO Elon Musk announced the EV maker would be using solid-state lithium batteries in some of its vehicles beginning next year, although he didn’t indicate where the underlying technology would come from. Dodge parent Stellantis intends to begin tinkering with the tech in 2026.
Connect the dots. This is the future. Indeed, as solid-state batteries benefit from the EV market’s growth, they may also help reaccelerate its expansion.
In this vein, Polaris Market Research suggests the global EV battery market is set to grow at an annualized pace of nearly 19% through 2030. Solid-state batteries should drive the bulk of this growth. Straits Research, in fact, predicts the worldwide solid-state lithium battery market is poised to grow by an average rate of more than 36% during this time frame.
But the question remains — could a $10,000 investment in QuantumScape now grow to a million-dollar holding within a lifetime?
Given the potential of its technology and the next likely chapter of the electric vehicle evolution, it’s certainly possible. This company’s market cap of $2.5 billion is nearly nothing compared to a solid-state lithium battery market that could eventually be worth more than $24 billion per year.
Just keep the risk in perspective. There’s a lot of it, beginning with the simple fact that the company isn’t actually selling anything yet. It’s only sitting on the prospect of selling its superior batteries. A close-second risk is the likelihood of lingering losses for long after QuantumScape officially begins commercialization of its tech. At the same time, while President-elect Donald Trump isn’t likely to up-end the EV movement’s growth, he can certainly rattle it.
If you can stomach the risk and the rest of your portfolio is on a stronger footing, QuantumScape a compelling prospect.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Nvidia, and Tesla. The Motley Fool recommends BlackBerry, Stellantis, and Volkswagen Ag. The Motley Fool has a disclosure policy.
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