Can QuantumScape's Business Model Reduce Losses & Boost Stability?

QuantumScape Corporation QS, a battery developer for electric vehicle use, operates with a capital-light model that focuses on two primary revenue streams. Initially, the company generates income by providing development services to its customers. These activities involve customizing QuantumScape’s solid-state battery technology to meet the unique requirements of each partner to ensure that the solutions align with their production needs. Once customers transition into large-scale manufacturing, QuantumScape benefits through royalties, which continue for the entire duration of the project. These royalties may come in various forms, including licensing fees or upfront royalty payments reflected in the agreement with PowerCo.

This approach is designed to balance short-term and long-term revenue opportunities. Payments tied to development work provide immediate financial inflows and support nearer-term operations. On the other hand, royalties represent a more substantial share of the company’s value by offering recurring, high-margin revenue streams over many years. By maintaining both income sources, QuantumScape aims to secure consistent cash inflows while advancing successive generations of its technology platform.

The strength of this business model stems from the uniqueness of QuantumScape’s battery innovations, which differentiate it from competitors and make such financial structures possible. The company expects tangible benefits from the given model in the near term. In the third quarter, QuantumScape plans to bill PowerCo more than $10 million for development work already completed by the joint team. These payments are anticipated to lower the company’s GAAP net loss, enhance bottom-line performance and extend available cash resources to strengthen overall financial stability. QS carries a Zacks Rank #2 (Buy) at present. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Revenue Streams of Other Battery Manufacturers

Ultium Cells LLC, a joint venture between General Motors Company GM and LG Energy Solution, produces lithium-ion battery cells at large-scale gigafactories specifically for GM’s electric vehicles. While its current operations focus on General Motors, the Ultium technology could potentially be offered to other automakers in the future through licensing or supply agreements.

SES AI SES generates income by partnering with automotive manufacturers to develop lithium-metal and lithium-ion batteries enhanced by artificial intelligence for use in electric vehicles. The company also aims to commercialize its AI capabilities through licensing deals and royalty-based models. A key part of this strategy is its “Molecular Universe” platform, an AI-powered tool for discovering new battery materials. This platform is expected to become SES AI’s most significant and lucrative revenue source.

QS’ Price Performance, Estimates and Broker Recommendation

QuantumScape has outperformed the Zacks Automotive-Original Equipment industry year to date. Its shares have gained 54.9% compared with the industry’s 10.2% growth. 

 
The Zacks Consensus Estimate for QS’ 2025 and 2026 bottom-line loss has narrowed by 2 cents and a penny, respectively, in the past 30 days. 

 
QuantumScape currently has an average brokerage recommendation of 3.40 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell etc.) made by 10 brokerage firms.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research