QuantumScape (NASDAQ:QS) is a battery start-up which has seen extreme volatility in recent years. A play on solid-state battery technology, QuantumScape provides investors with a much more speculative potential earnings curve than its EV peers.

In the previous bull market rally, QuantumScape achieved a remarkable $54 billion valuation. This valuation was driven by its solid-state battery technology, which, in theory, eliminates the flammable components of traditional lithium-ion batteries. These batteries also hold much more charge, charge faster, and are better in almost every way.

That sounds great. And the company’s association with Volkswagen (OTCMKTS:VWAGY) and Bill Gates added to its appeal. However, the hype surrounding QuantumScape has waned, leading to a significant decline of about 92% from its record high.

Despite this downside momentum, QuantumScape remains committed to its ambitious plans and expects to start production in the coming years. The company faces challenges, including rigorous testing and increasing competition, while investors remain cautious. In this light, investors should contemplate the long-term prospects of QuantumScape before investing in this stock.

QuantumScape’s Background

QuantumScape was established in 2010 to develop an advanced battery technology to address the limitations of current lithium-ion batteries.

After a decade of dedicated effort, QuantumScape has successfully created (in a lab) a battery that offers fast charging, long battery life, and enhanced safety. Their innovative solid-state technology aligns with the goal of powering zero-emissions transportation and contributing to a sustainable future.

QuantumScape utilizes an innovative anode-less battery cell design that reduces manufacturing costs and offers a 17% cost advantage compared to traditional lithium-ion batteries.

Their streamlined material sourcing process enables scalable and cost-effective battery production. Further, QuantumScape’s proprietary design incorporates a high dendritic resistance ceramic electrolyte, eliminating dendrite issues commonly found in solid-state batteries.

By addressing these key challenges, QuantumScape aims to create a new generation of electric vehicle batteries that are cheaper, longer-lasting, faster-charging, and superior to current lithium-ion technology.

Solid State Batteries Are Still Impractical

While QuantumScape’s battery technology has potential, solid-state batteries still have a long way to go before they become practical. Solid-state batteries currently face a major drawback: their high cost compared to lithium-ion batteries.

This is primarily because of the need for new manufacturing facilities and the substantial amount of lithium required, estimated to be five to 10 times more than traditional batteries. With lithium prices already elevated and supply constraints, acquiring sufficient lithium for solid-state batteries will be a costly endeavor.

There is consensus among experts that the challenges associated with solid-state batteries can be resolved or significantly reduced within the next 5-10 years.

During this time, advancements in manufacturing techniques and gradual establishment of suitable factories by automakers are expected. Ford, for instance, predicts that solid-state batteries won’t be commercially viable before 2030.

By then, remaining technical concerns, such as the ability to withstand repeated charging cycles, are likely to be addressed.

On a Positive Note

QuantumScape’s innovative battery design eliminates anode manufacturing costs, resulting in 17% lower all-in battery costs compared to traditional lithium-ion batteries.

The company has also streamlined material sourcing for scalable and cost-effective battery production.

With a ceramic electrolyte that resists dendrite formation, QuantumScape’s batteries overcome the limitations of solid-state chemistry, offering cheaper, longer-lasting, and faster-charging solutions that outperform current lithium-ion technology. 

Thus, for many investors looking for speculative upside, QuantumScape certainly appears like a stock that could have something here, if it’s able to manufacture these batteries commercially.

What Now?

QuantumScape’s solid-state batteries hold promise for the future, but with commercialization expected to take several years, the current risk-reward prospects for QS stock lean negative.

It’s my view that short-sellers have targeted this company for a reason, and many of their claims are founded. It’s the company’s time to commercialization that has me, and other investors, concerned.

Thus, QS stock may simply be too speculative to invest in right now.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.