Equity X-Ray: In-Depth Research #10

Investing in Batteries: Spotlight on QS

Company Overview

Imagine a world where electric vehicles can charge as quickly as filling up your gas tank, range anxiety is a thing of the past, and batteries are safer than ever. QuantumScape is working to make this vision a reality.

Founded in 2010, QuantumScape was born from a simple yet revolutionary idea: What if we could reinvent the battery from the ground up? While traditional lithium-ion batteries are impressive, they have reached their theoretical limits.

The Battery Basics: Understanding the Challenge

To understand why QuantumScape's technology is revolutionary, let's break down how batteries work using a simple analogy:

Think of a battery like a parking garage with two levels (the cathode and anode). The cars represent lithium ions:

• When charging: Cars (lithium ions) move from the lower level (cathode) to the upper level (anode)

• When discharging: Cars return to the lower level, releasing energy in the process

The "parking garage" uses a liquid elevator system (electrolyte) to move the cars between levels in traditional batteries. This liquid can be dangerous (think of a flammable fluid) and slow the process.

QuantumScape's Innovation: The Solid-State Revolution

QuantumScape's breakthrough is like replacing that liquid elevator with a solid, ceramic escalator system. Their solid-state design offers several key advantages:

1. Speed: Imagine replacing a narrow elevator with a wide escalator – more cars can move at once, enabling faster charging (under 15 minutes)

2. Safety: Unlike liquid electrolytes, the ceramic separator is non-flammable. It's like replacing a wooden building with a concrete structure.

3. Energy Density: By eliminating the need for graphite in the anode (like removing empty parking spaces), more energy can be stored in the same space.

Let's translate these technical improvements into real-world benefits:

• Range: A car using QuantumScape's batteries could potentially travel over 500 miles on a single charge

• Charging: Fill up from 10% to 80% in about 12 minutes (comparable to gas station visits)

• Lifespan: Batteries maintaining 80%+ capacity after 800+ cycles (equivalent to 240,000+ miles)

"It's inside a battery. You have very highly reactive constituents in a battery at the fundamental level. You want it to store a lot of energy and be light and small. Therefore you want to work with reactive materials. And then the problem is that these highly reactive materials in small, confined spaces are touching other things and have what are called side reactions."

Dr. Tim Holme (CTO)

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Technical Analysis

QuantumScape (QS) has maintained a critical support zone between $4.70 and $5.20 since 2023, establishing this range as a crucial technical threshold. In the wake of yesterday's earnings report, the stock's current proximity to this support level presents a compelling opportunity for potential entry. The risk-reward profile appears particularly interesting at these levels.

Technical analysis reveals a descending wedge pattern on daily and weekly timeframes, with price action consolidating near the $4.75 support level. This concurrent pattern across multiple time frames could signal a heightened probability of a potential reversal to the upside.

Key Support Level: $4.75

Key Resistance Level: $7.00

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Update from 12 February Earnings Call

The earnings report shows mixed results for QuantumScape. While the company beat EPS expectations and maintains a strong liquidity position ($910.8 million at year-end), it continues to generate significant losses (well managed with GAAP operating expenses of $525.2 million for the full year) as expected for a pre-revenue company. The positive aspects include better-than-expected cost management and sufficient cash runway into 2028.

Looking forward to 2025, QuantumScape guided for:

• Capital expenditures between $45-75 million

• Adjusted EBITDA loss between $250-280 million

• Focus on initial shipments of QSE-5 B1 cells

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