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QuantumScape vs. Solid Power: Which EV Battery Stock is a Better Buy?

Today I will analyze and compare QuantumScape (QS) and Solid Power (SLDP) to determine which electric vehicle battery stock is currently a better investment.

With the rising concerns about climate change, the electric vehicle (EV) market is expected to grow exponentially over the long term. Consequently, all auxiliary industries should capitalize on this growth as well, especially the EV batteries market, which is a crucial component of EVs.

Fortune Business Insights reports that the global EV battery market is estimated to grow at a CAGR rate of 28.1% during 2021-2028, reaching $154.9 billion in the terminal year. The increasing demand for EVs, coupled with advancements in battery performance and a decrease in the price of Lithium-Ion batteries, should drive the market’s growth during the forecast period.

With this in mind, I am going to analyze and compare two EV battery stocks, QuantumScape Corporation (QS) and Solid Power, Inc. (SLDP), to see which one currently presents a better buying opportunity. 

Founded in 2010, QS is a development stage company that develops solid-state lithium-metal batteries for EVs. Based in Denver, Solid Power operates as a battery manufacturer that produces all-solid-state rechargeable battery technology primarily for EVs and other applications.

Year-To-Date (YTD),‌ ‌QS stock has slid about 48.5%, and SLDP has dropped around 0.8%. ‌ 

Click here to checkout our Electric Vehicle Industry Report for 2022

Recent Developments

On April 12th, Deutsche Bank analyst Emmanuel Rosner started coverage of QuantumScape stock, establishing a Hold rating and $20 price target. The analyst emphasized that QS is presently several years away from mass manufacturing even if it successfully goes through scale-up of its technology and solves further vast technical challenges. Later in March, Sumitomo Mitsui Financial Group also assigned a "Neutral" rating on QS stock with a price target of $20.00.

Financial Overview & Analysts’ Estimates

On April 26th, QuantumScape revealed its first-quarter earnings report. The company hasn’t made any revenues to date because it is still in the emerging stage. Besides, the company's first-quarter GAAP EPS stood at ($0.21), missing analysts’ consensus by $0.03. 

In terms of expenses, QuantumScape's general and administrative costs totaled $29.31 million in Q1, up 93% year-over-year. Its research and development expenses have been reported at $61.35 million versus $29.47 million as of 1Q2021, driven by higher personnel costs and professional fees and an increase in material supplies and equipment maintenance. As a result, its net loss grew 20% YoY to $90.35 million.

As of March 31st, 2022, the company had cash and marketable securities of about $1.35 billion. It anticipates having 2022 cash operating expenses between $225 and $275 million. With that, the company shouldn't experience any liquidity issues in 2022. 

Wall Street expects QS' EPS to stand at ($0.15) in the second quarter of 2022. Besides, QuantumScape should generate its first revenues of $1.11 million in FY2023.

For its fiscal first quarter ended March 31st, 2022, Solid Power's revenue was up 358% year-over-year to $2.2 million, beating Wall Street's revenue consensus by $1.3 million. The increase in revenue was driven by higher levels of government and commercial contracts. In Q1, Solid Power's total operating expenses grew 183% year-over-year to $13.5 million due to the planned investments in product development and the scaling of its operations.

Also, SLDP reported a GAAP EPS of ($0.06), beating Wall Street’s consensus by $0.02.

The company ended the first quarter with $564 million of total liquidity, while its first-quarter cash burn rate was $14.37 million. Consequently, Solid Power has a strong liquidity position.

It is important to note the company anticipates its 2022 total revenue in the range between $3 and $5 million. For the second quarter, analysts expect SLDP's EPS to be ($0.10). Also, analysts project the company's FQ2 revenue to come in at $0.9 million. 

Comparing Options Market Sentiment

Looking at the August 19th, 2022, option chain for QS and SLDP, we can determine options market sentiment by analyzing the calls/puts ratio. In QS' case, the open calls/open puts ratio at the $12.50 strike price comes in at 0.07x, implying a heavy bearish options market sentiment. When it comes to SLDP, the open calls/open puts ratio at the $10.00 strike price is 8.27x, indicating a bullish options market sentiment. 

The Bottom Line 

While QuantumScape and Solid Power should benefit from the EV battery market's growth over the long term, I believe Solid Power is presently a better investment due to its attractive financials, strong liquidity position, promising growth prospects, and better options market sentiment.

QS shares were trading at $11.75 per share on Thursday morning, up $0.32 (+2.80%). Year-to-date, QS has declined -47.05%, versus a -18.15% rise in the benchmark S&P 500 index during the same period.

About the Author: Oleksandr Pylypenko

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.


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