QuantumScape (QS) stock is falling: here’s a better alternative
QuantumScape (NYSE: QS) stock price has retreated sharply this year, joining other companies in the EV industry that have plunged this year. As I predicted in my last article, it has dropped to its November 2023 lows and some analysts believe it has more downside to go.
QuantumScape has made a lot of progress
QauntumScape’s shares have crashed by almost 20% this year and by 60% from its highest level in 2023. It has joined other EV companies in a deep sell-off. Tesla, the gold standard in the EV industry, has dropped by 40% while Lucid, Rivian, Mullen Automotive, and Nio have all plunged by over 40%.
QuantumScape has dropped even after the company made some important progress. In March, Volkswagen Group and PowerCo published highly positive results about its battery system. The results revealed that the battery completed 1,000 charging cycles while the cell barely aged.
QuantumScape’s battery would be a game-changer in the EV industry since these charging cycles were equivalent to over half a million kilometers. The battery also charges fast, which will help to reduce the range anxiety among consumers.
The other positive fact about QuantumScape is that it has a solid balance sheet as it ended the last quarter with over $1 billion in cash, equivalents, and marketable securities.
This means that it will likely not need to raise cash in the next few months since its annual loss came in at $445 million in 2023. It can lose the same amount in the next two years and remain with cash in its balance sheet.
Why Toyota is a better investment
Still, despite this progress, I believe that Toyota is a better solid-state battery investment than QuantumScape for three main reasons.
First, Toyota has made a substantial progress in the solid-state battery business. The company made a major leap in the industry in 2023 and it now expects to commercialize the technology in 2027 and 2028. Its battery will be able to charge for 10 minutes and receive a 750-mile range, which is impressive.
Second, Toyota has placed its bets in three key areas: Internal Combustion Engine (ICE) vehicles, battery electric vehicles (BEV), and hybrids. It has become the global market leader in hybrids, the fastest-growing segment in the industry.
Its solid-state battery product will complement the other segments of the business. For example, if the EV bubble bursts, Toyota will continue thriving because of its ICE and hybrid vehicle business.
Third, Toyota is one of the most profitable companies in the vehicle industry. Its net profit in the trailing twelve months (TTM) stood at over $31 billion and this trend may continue in the next few years.
As such, the two companies will likely move in separate directions in terns of their share count. QuantumScape will likely need to raise additional funds ahead of its manufacturing ramp-up. It will either do that by raising debt or by selling new shares.
Toyota, on the other hand, has been slashing its share count through share repurchases. In May last year, it launched a $1.1 billion buyback, which it completed in November. It recently announced that it will repurchase 25 million more shares in a bid to boost its earnings per share.
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