On Monday, Truist Securities updated its guidance on shares of QuantumScape Corporation (NYSE: QS), increasing the price target to $7 from the previous $6, while maintaining a Hold rating on the stock. The adjustment follows QuantumScape's recent announcement of a partnership with Volkswagen (ETR:VOWG_p)'s PowerCo.
The collaboration with VW's PowerCo has prompted QuantumScape to shift its focus towards a licensing model. Truist Securities believes this strategic move is a wise decision to accelerate the process of commercialization and conserve capital.
As a result of this shift, Truist Securities has removed all projections for wholly-owned or joint venture plants from its forecasts. The firm now estimates that QuantumScape's total licensing capacity will expand to 380 gigawatt-hours (GWh) by 2033, including 80 GWh for PowerCo.
The revised forecasts by Truist Securities anticipate a significant reduction in QuantumScape's estimated cash burn. However, the impact of a longer timeline for revenue growth and a lower revenue base has led to a modest increase of $1 per share in the discounted cash flow (DCF)-based price target. The analyst at Truist Securities commented on the update, stating that the new price target reflects the balanced risk/reward at QuantumScape's current stock price.
QuantumScape, known for its developments in solid-state battery technology, is expected to benefit from the licensing model in terms of scaling up production. The agreement with PowerCo is seen as a key step in this direction, potentially positioning the company to meet the growing demand for electric vehicle batteries.
The Hold rating suggests that Truist Securities views the current valuation of QuantumScape as fair, considering the potential benefits and challenges of the new business strategy. Investors and market watchers will be keeping an eye on QuantumScape's progress as it works towards its commercialization goals in partnership with PowerCo.
In other recent news, QuantumScape, a pioneer in solid-state lithium-metal battery technology, has secured a substantial licensing agreement with PowerCo, Volkswagen Group's dedicated battery unit. The deal involves a $130 million royalty prepayment to QuantumScape, extending the company's cash runway to 2028.
The collaboration targets an initial production volume of 40 gigawatt hours per year, with an option to expand to 80 gigawatt hours. This partnership is expected to expedite the introduction of QuantumScape's battery technology in the electric vehicle market and could serve as a model for future agreements.
QuantumScape is also engaged in discussions with eVTOL companies, highlighting the versatility and appeal of its technology beyond the automotive industry. While focusing on the EV sector, QuantumScape continues to explore opportunities in other sectors, including aviation. These are the latest developments in the company's strategic efforts to expand its market reach and maintain a competitive edge.
InvestingPro Insights
Following Truist Securities' updated guidance on QuantumScape Corporation (NYSE: QS), real-time data and insights from InvestingPro provide additional context for investors evaluating the company's prospects. QuantumScape's market capitalization stands at $2.97 billion, indicating a significant presence in the battery technology sector. Despite not having a positive P/E ratio, reflecting its current lack of profitability, the company's stock has experienced a strong return over the last month, with a 19.8% increase.
An InvestingPro Tip highlights that QuantumScape holds more cash than debt on its balance sheet, suggesting a stable financial position to support its strategic shift towards a licensing model. However, analysts have revised their earnings downwards for the upcoming period, indicating potential headwinds.
With high price volatility and weak gross profit margins, QuantumScape's stock price movements may continue to be quite volatile, as noted in another InvestingPro Tip. Furthermore, the company's valuation implies a poor free cash flow yield, and it does not pay a dividend to shareholders, which may be relevant considerations for income-focused investors.
Investors can find additional InvestingPro Tips by visiting https://www.investing.com/pro/QS, with a total of 11 tips available to help guide their investment decisions in QuantumScape. These insights, combined with the latest market data and analysis, can help investors better understand the risks and opportunities associated with QuantumScape as it advances its partnership with Volkswagen's PowerCo and moves towards commercialization.
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