Licensing Model And Eagle Line Progress Will Drive Long Term Solid State Battery Adoption

Catalysts

About QuantumScape

QuantumScape develops solid state lithium metal battery technology and aims to commercialize it through a capital light development and licensing model.

What are the underlying business or industry changes driving this perspective?

• Commissioning of the Eagle Line pilot production line, built around the Cobra process, creates a working blueprint for gigawatt hour scale manufacturing that customers can adopt. This is geared to support future revenue from licensing and related customer billings.
• Deepening collaboration with PowerCo within the Volkswagen Group, plus the addition of two major global auto OEMs and new joint development and technology evaluation agreements, points to a broader customer base that can support higher customer billings and future licensing income.
• First customer billings of US$19.5 million in 2025, along with the US$131 million potential development payments referenced in the PowerCo arrangement, show that the development and licensing model is already generating cash inflows that can contribute to revenue and reduce pressure on net losses over time.
• Partnerships with Murata and Corning on ceramic separator production, along with a wider supplier ecosystem, are designed to support secure, scalable supply for solid state batteries and can be important for future gross margins and capital efficiency if volumes grow.
• Management focus on automotive as the core market, while selectively pursuing higher value uses in areas like data centers, drones, robotics, aviation and grid applications, gives multiple potential end markets for the same technology platform. This can diversify future revenue streams and provide operating leverage.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more optimistic perspective on QuantumScape compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• QuantumScape currently has no revenue. The bullish analysts are forecasting revenue to reach $2.6 billion by April 2029.
• The bullish analysts are not forecasting that QuantumScape will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate QuantumScape's profit margin will increase from 0.0% to the average US Auto Components industry of 6.1% in 3 years.
• If QuantumScape's profit margin were to converge on the industry average, you could expect earnings to reach $157.7 million (and earnings per share of $0.21) by about April 2029, up from -$435.1 million today.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 72.0x on those 2029 earnings, up from -8.7x today. This future PE is greater than the current PE for the US Auto Components industry at 17.7x.
• The bullish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.04%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• QuantumScape is still in a pre revenue phase, with 2025 customer billings of US$19.5 million recorded to shareholders' equity rather than as revenue under U.S. GAAP. If the transition from billings to recurring licensing and product revenue is slower than hoped, the company may continue to rely on its US$970.8 million liquidity for longer. This would weigh on future revenue growth and extend the current net loss profile.
• The business model depends on licensing and a capital light approach to manufacturing, using partners such as PowerCo, Murata and Corning. Any delay, change of priorities or funding pressure at auto OEMs or cell manufacturers, including Volkswagen and PowerCo, could defer gigawatt hour scale adoption of QSE 5 and limit the uplift to earnings and margins that analysts are currently assuming.
• Automotive remains the core focus and is described as a large and long cycle market. Management also wants to expand into data centers, drones, robotics, aviation and grid applications. Spreading R&D and customer support across many use cases could stretch resources, make commercialization slower in any single vertical and keep operating expenses and net losses high relative to revenue for an extended period.
• The company is still working to prove out the Eagle Line as a scalable manufacturing blueprint, with many operational metrics such as uptime, yield, cost and cycle time yet to be optimized. If this pilot line encounters technical setbacks or fails to convince customers on cost and quality, licensing partners may hesitate to commit capacity, which would limit revenue and delay any improvement in gross and net margins.
• QuantumScape is investing heavily in pushing beyond QSE 5 with ongoing CapEx of US$40 million to US$60 million guided for 2026 and continuing adjusted EBITDA losses expected between US$250 million and US$275 million. If the long term shift to solid state batteries, especially for EVs, progresses more slowly than management and bullish analysts anticipate, the company could face prolonged losses and pressure on earnings without a matching rise in revenue.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for QuantumScape is $12.0, which represents up to two standard deviations above the consensus price target of $7.91. This valuation is based on what can be assumed as the expectations of QuantumScape's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $12.0, and the most bearish reporting a price target of just $2.5.
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $2.6 billion, earnings will come to $157.7 million, and it would be trading on a PE ratio of 72.0x, assuming you use a discount rate of 8.0%.
• Given the current share price of $6.21, the analyst price target of $12.0 is 48.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.