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An amazing opportunity to potentially get a 100 bagger

Published
09 Jul 25
Updated
04 Aug 25
davidlsander's Fair Value
US$0
n/aintrinsic discount
04 Aug
US$8.10
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1Y
40.6%
7D
2.9%

Author's Valuation

US$0

n/aintrinsic discount

davidlsander's Fair Value

Last Update04 Aug 25

Why Goldman's $3 Target on QuantumScape Misses the Forest for the Trees

The recent reiteration of a "sell" rating on QuantumScape (NYSE: QS) by Goldman Sachs sent a predictable chill through the market. Citing execution risks and a long road to profitability, their $3 price target paints a bleak picture. While the market reacted with fear, seasoned investors should react with curiosity. In my view, Goldman's analysis represents a fundamental failure of imagination, focusing myopically on spreadsheet-driven risks while dramatically undervaluing tangible strategic progress and the sheer scale of the technological moat QuantumScape is building.

This isn't just another speculative tech story; it's a calculated bet on a company taking the "hardest path" to revolutionize a multi-trillion dollar industry. Goldman's valuation is not just pessimistic; it is, I believe, wrong. Here’s why.

Argument 1: Deconstructing the Timeline Fallacy

Goldman’s valuation model rests on a deeply punitive timeline, assuming meaningful revenue is a post-2030 fantasy. This assumption flies in the face of the company's own stated goals and visible progress. QuantumScape is targeting the 2026-2027 timeframe for commercial production, a timeline built around its landmark "Cobra" manufacturing process, which was specifically designed to solve the challenges of high-volume production.

Furthermore, the progress with A, B, and now C-sample cells for automakers is not just lab work; it is a critical de-risking process. Each step validates the technology's viability in real-world formats. To dismiss this progress and push out timelines by several years is to ignore the methodical engineering achievements that form the very foundation of the company's path to market. A high discount rate for a pre-revenue company is warranted, but Goldman's model appears to apply a rate that assumes a near-certainty of failure, not just risk.

Argument 2: The Flaw in the "Competition" Narrative

The argument that improving, cheaper lithium-ion batteries (like LFP) will outcompete QuantumScape is a classic case of comparing apples and oranges. QuantumScape is not initially aiming to compete with a budget-friendly battery destined for a standard-range EV. That is not its battlefield.

Solid-state technology is a premium product targeting the lucrative high-performance segment. Its value proposition is a trifecta of unparalleled energy density (longer range), superior safety (no flammable liquid electrolyte), and game-changing fast charging (10-80% in under 15 minutes). Automakers will pay a significant premium for this capability in their flagship sedans, SUVs, and performance vehicles. To suggest it will be immediately undercut by LFP is like arguing that a base model engine makes a high-performance V8 obsolete because it’s cheaper. They serve different markets with different value propositions.

Argument 3: The Underestimated Power of Strategic Partnerships

This is perhaps the most significant oversight in Goldman’s analysis. The report seems to view QuantumScape's partnerships—most notably with Volkswagen but also with at least one other top-10 global automaker—as little more than speculative R&D projects.

This interpretation is fundamentally flawed. These are not casual agreements. Volkswagen, one of the world's largest automakers, has invested hundreds of millions and has a board seat. They are not a customer; they are a deep technical and manufacturing partner with a vested interest in seeing this technology succeed. This collaboration provides invaluable manufacturing expertise and a clear path to market. Broad industry validation from other major automotive players further dismantles the narrative that this is a niche science project. When multiple industry giants commit resources and reputation, they are confirming their belief in the technology's viability. This is a powerful signal that a financial model struggles to quantify.

Argument 4: The Moat a DCF Model Cannot See

A simple discounted cash flow (DCF) model is a tool, but it's a poor instrument for measuring a company building a truly defensible, long-term moat. Applying Hamilton Helmer's "7 Powers" framework, QuantumScape is securing at least two:

  1. Cornered Resource: With over 300 patents, QuantumScape has built a formidable intellectual property fortress around its proprietary anode-less cell design and solid-state ceramic separator.
  2. Process Power: The Cobra manufacturing process, if successful at scale, represents a proprietary, lower-cost method for producing solid-state batteries—a process competitors would find incredibly difficult and expensive to replicate.

Goldman's model, by its very nature, must discount these qualitative factors. Yet, it is these very factors that create durable, long-term value and prevent commoditization.

Conclusion: An Asymmetric Bet for the Patient Investor

Let me be clear: QuantumScape is not a risk-free investment. The single greatest hurdle remains the transition from pilot production to high-volume, cost-effective manufacturing. This execution risk is real and should not be ignored.

However, the current valuation, heavily influenced by fear and a bearish analyst report, offers a profoundly asymmetric bet. The potential downside is the capital invested. The potential upside is a stake in a company that could fundamentally re-architect the energy storage and transportation industries.

Goldman Sachs has provided a roadmap of everything that could go wrong. For investors with a multi-year time horizon, who understand the principles of investing in transformative technology, they have also inadvertently highlighted an opportunity. The market is pricing in the fear of failure, allowing patient investors to price in the possibility of world-changing success.

Disclaimer: This article represents the author's personal opinion and should not be considered financial advice. The author holds a long position in QuantumScape. All investors should conduct their own due diligence before making any investment decisions.

QuantumScape: From Ambitious Science to the Cusp of a Battery Revolution

Links to my detailed research videos

https://www.youtube.com/playlist?list=PLTxyzjHIS6phTvuEN20Iv5uA1g9qLcmc5

 

QuantumScape (QS), a company that for years was often dismissed as a mere "science project" by skeptics, has definitively transformed into a formidable business on the verge of real-world impact1.... Having chosen the "Hard Path" to tackle fundamental battery challenges, QuantumScape's journey, spanning over a decade and fueled by approximately $1.5 billion in funding (with roughly $300 million strategically deployed to date), is now poised for commercial success3....

At the heart of QuantumScape's innovation is its proprietary ceramic separator, a unique component that enables an anode-free lithium metal battery architecture1.... This design allows them to solve the elusive "and problem" – simultaneously achieving multiple critical performance metrics that have long eluded the battery industry3....

Key Breakthroughs and Validated Performance:

Ultra-Fast Charging: QuantumScape batteries can charge from 0% to 80% in less than 15 minutes3.... Their ceramic separator can withstand current densities equivalent to a 2-minute charge (25C rate) without failure, a "remarkable leap" that "blows away any previous demonstration"3.... This capability is "astonishing" and "reimagines what fast charging even means"89.

Long Cycle Life: The cells have demonstrated over 800 cycles with more than 80% capacity retention under aggressive, real-world conditions3.... This isn't a "hero cell" but a "whole batch of cells" cycling reliably, meeting the spec for commercial automotive deployment1920.

Inherent Safety: Unlike conventional lithium-ion batteries that use flammable liquid electrolytes, QuantumScape's ceramic separator is non-flammable, acting as a "fire break" and remaining stable up to 1000°C3.... This "inherent safety" is a significant advantage for mass production2224.

Wide Temperature Operation: The batteries operate effectively across the entire automotive temperature range, including down to -30°C, without needing large, expensive heaters19....

Zero Excess Lithium: By forming the anode in situ on the first charge, QuantumScape cells have zero excess lithium, maximizing energy density and simplifying the manufacturing process7....

Low Operating Pressure: While some solid-state batteries require high external pressure, QuantumScape's cells operate at around 3 atmospheres of pressure, with internal demonstrations showing functionality even without applied pressure2728.

Nobel laureate Stan Whittingham, a co-inventor of the lithium-ion battery, has unequivocally stated, "I have not seen data this good anywhere else. I think it's a real breakthrough"3....

The Road to Commercialization:

The scientific hurdles have been largely addressed; the focus now shifts to mass production and vehicle integration3.... QuantumScape's production process is significantly advanced by their Cobra process, which has entered baseline production333. Cobra is described as a "giant step forward in ceramics processing," running 25 times faster than their previous method, more scalable, and more efficient, requiring less energy and materials33. This is an in-house developed tool, forming a substantial economic moat33.

A cornerstone of QuantumScape's commercial strategy is its deep partnership with Volkswagen (VW), dating back to 20122.... In 2018, they formed a joint venture, and VW's battery arm, PowerCo, now has a non-exclusive licensing agreement with QuantumScape234. VW has publicly targeted integrating these batteries into vehicles by 202545. Their initial strategy is akin to Tesla's approach with the Model S: introducing the technology into luxury brands like Bentley, Bugatti, Porsche, and Lamborghini2.... This allows them to command a premium for the advanced performance and demonstrate the technology's capability at the highest standards3536. The joint venture plans for a two-phase ramp-up, from an initial 1 GWh to a full gigafactory scale of 20 GWh3738. A significant advantage is that much of QuantumScape's production process is compatible with existing lithium-ion battery factories, enabling faster market penetration3....

Navigating Risks and Competitive Landscape:

No disruptive technology is without risks. The primary challenge for QuantumScape remains scaling up production – combining single-layer cells (playing card thin) into multi-layer cells (deck of cards size) and then ramping up manufacturing capacity, a process expected to take 18 to 24 months37.... QuantumScape is mitigating this with a strong $1.5 billion balance sheet and Volkswagen's expertise in "high volume high quality production"3.... They have also strategically brought in new leadership with extensive experience in high-volume precision manufacturing from the semiconductor industry, which is directly applicable to battery production342.

While competition from companies like Toyota, targeting solid-state battery production by 2026, is emerging, this is seen as a positive catalyst3442. It "presses timelines" and "helps them innovate"942. QuantumScape's unique ability to pass the "and test" – achieving multiple critical performance metrics simultaneously – remains a key differentiator89. The transition of founder Jagdeep Singh from CEO to Chairman and now retirement has been noted, but the strategic shift to manufacturing-focused leadership is viewed as a necessary evolution for a company moving beyond R&D4243.

The Immense Potential:

QuantumScape's technology directly addresses the five key limitations of current EV batteries: range, charging speed, life, safety, and cost10....

• It offers higher energy density (up to 1000 Watt-hours per liter compared to 700s for conventional lithium-ion), leading to longer driving ranges1012.

• The elimination of the carbon anode material, dramatic cuts in "formation cycle" time (which can account for 20-25% of production costs), and the use of four commodity precursor materials for the separator promise significant cost reductions10....

• Furthermore, the technology may even simplify battery recycling, as the least recyclable parts (separator and anode material) are either eliminated or made from more recyclable components5051.

As one expert articulated, the question is "no longer whether solid state lithium metal will be real, the question is simply when"5253. QuantumScape's innovation represents a fundamental shift that puts lithium chemistry batteries on a "different roadmap for innovation," with the potential to be a "huge winner" and accelerate the electric vehicle revolution43.... The future, indeed, is solid.

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Disclaimer

The user davidlsander has a position in NYSE:QS. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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