Is QuantumScape Stock a Buy Now?

Early investors in electric vehicle (EV) battery start-up QuantumScape (NYSE: QS) haven't had the greatest ride. The start-up went public via a merger with a special-purpose acquisition company (SPAC) in 2020, and its stock promptly soared to a valuation of about $54 billion.

That was despite that fact that QuantumScape had no meaningful revenue. But what it did have was a possible pathway to a new type of EV battery that could offer huge advantages over current lithium-ion cells.

Investors surged into the stock -- and then bailed out when it became clear that even if all went well, QuantumScape wasn't likely to be profitable for at least several years. Its market cap is now just north of $2 billion.

QuantumScape has always been a "moonshot," an all-or-nothing attempt to create a better battery. If it succeeds, it could be worth a fortune; if it fails, it won't be worth much at all.

But here's the thing: Here in mid-2025, QuantumScape looks more likely to succeed than ever, and the timeline isn't all that long anymore.

QuantumScape's batteries could lead to lighter and safer EVs that charge more quickly. Image source: Getty Images.

QuantumScape's breakthrough: A little piece of ceramic with big implications

QuantumScape is one of several efforts working to perfect and commercialize "solid-state" batteries so called because they do away with the flammable gel or liquid electrolyte found in today's lithium-ion batteries. Most of those efforts are backed by automakers; QuantumScape counts Volkswagen AG (OTC: VWAGY) as a major investor and key partner.

Automakers are pursing the technology because in theory, solid-state batteries offer several advantages for EVs. A solid-state battery pack can be smaller and lighter than a lithium-ion battery pack of the same capacity, can recharge more quickly than current batteries, and -- because there's no liquid in the battery cells -- are less likely to catch fire.

Researchers have tinkered with solid-state batteries since the 1960s, but they have never made it out of the labs. The problem: The batteries tend to fail quickly because of internal short circuits.

QuantumScape has developed a battery component called a "separator," made from a flexible ceramic material, that resists the short-circuiting problem. In testing -- which is now quite advanced -- the technology has worked well. QuantumScape is now working on scaling up production, with a goal of shipping some early production batteries to Volkswagen by the end of the year.

QuantumScape's key innovation is a flexible ceramic battery separator that overcomes the short-circuiting problem that plagued earlier solid-state battery development efforts. Image source: QuantumScape.

Volkswagen and QuantumScape plan to use the first batteries in a limited-production EV that will showcase the technology's advantages. In time, QuantumScape plans to outsource production of the batteries and key components under license.

The investment case for QuantumScape

I start from these assumptions:

• EVs are here to stay. Despite political bumps in the road, EV sales will continue to grow significantly over the medium-to-long term -- in the U.S. and around the world.
• Current battery technology is still an obstacle to wider adoption. Although a lot of progress has been made over the last few years, EV batteries are still heavy and expensive, and concerns about recharging times and fire risks persist.
• Solid-state batteries could help change that. An EV battery that was lighter in weight, quicker to charge, and safer in a collision would be a significant win for consumers and the auto industry. If such a battery appears and is cost competitive with existing batteries, demand is likely to be high.

As I said above, QuantumScape isn't the only start-up or research effort pursuing solid-state EV batteries. But even if a few others succeed, the company's deep ties to Volkswagen ensure a market for its batteries right away -- and as costs come down, revenue could be very significant.

The stock is still speculative, but the fact that QuantumScape has made steady, tangible progress toward its goal makes it much less speculative than it was a few years ago. The company says it has enough cash on hand to fund operations into mid-2028, more than enough time if it stays even close to its planned timeline. So far, it looks like it will.

Is QuantumScape a buy now?

The big tests for QuantumScape will come in the next year or so as we begin to see how a QuantumScape-powered EV performs in the real world. The stock is still quite cheap, but I suspect that will change quickly at the first sign of success.

It isn't without risk, but if you like the idea, this is definitely the time to buy.

Should you invest $1,000 in QuantumScape right now?

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John Rosevear has no position in any of the stocks mentioned. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.