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QuantumScape
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== Initiating with a Hold and $20 price target == When evaluating QuantumScape, Deutsche Bank looks to two peer groups as close representations of the company’s potential: established li-ion battery manufacturers, and pre-revenue battery startup peers. Considering QS’ business model is built around the deployment of an entirely newto-market technology, Deutsche Bank values the company much like a prospective BioTech firm based on two scenarios focused on the likelihood that the core product successfully (or unsuccessfully) progresses toward the point of commercialization; Scenario #1 would see the company accomplish its goal of bringing an automotive-ready solidstate battery to market in a reasonable timeframe, which Deutsche Bank believes would warrant a multiple in-line with or above that of the more established li-ion players (including LG Energy Solutions, CATL, SK Innovation, Samsung SDI, and Panasonic, among others). Deutsche Bank believes a valuation on 2028 EV/Sales around 2.0x (at the high end of incumbent range) is justifiable given the product’s opportunity to disrupt the battery space in terms of improved energy density, safety, charging capabilities, and potentially cost longer term, albeit at lower initial volumes. In this scenario, the company would reach an EV of $8.3bn, representing a $24 per share value. Alternatively, Deutsche Bank notes that there remains considerable operational risk for QuantumScape on the road ahead as it scales from ~16-layer cells to mass production of 100+ layer cells, namely ramping an untested manufacturing process; This leads to scenario #2, which would represent the case where QS is unable to meet its timeline to commercial launch, leading to significant cash burn (and increased capital need) and a dissolved first mover advantage. In this case, Deutsche Bank sees downside risk to a valuation of about 0.65x 2028 EV/sales, trading down toward the average of its battery start-up peers. This would correspond to an enterprise value of ~$2.7bn, and a per-share value of just $10. Given the company’s solid operational progress to date, Deutsche Bank sees about a 70% chance that the company successfully meets its stated targets for launch under scenario #1 and just 30% for scenario #2. Together, this leads to a blended EV of $6.6bn, justifying its price target of $20. Ultimately, Deutsche Bank thinks QuantumScape’s value could be determined by its testing/validation progress, manufacturability, and timing relative to some of its next-gen peers. If successful, the company could dethrone the traditional li-ion incumbents that have dominated the battery space for decades. Deutsche Bank therefore initiates coverage of QuantumScape with a Hold rating, as Deutsche Bank believes that the company offers a compelling product with a strong opportunity to disrupt the incumbent battery market if proven successful. Nevertheless, the company is faced with considerable operational challenges ahead as it works to progress through its prototype sample phases and eventually move to mass production on a relatively tight timeline. Its partnerships with VW and numerous other global/luxury automakers should guarantee solid volumes once deployed, so the key lever for the stock’s potential rests in the validation and ramping stages leading up to launch. Its $20 price target is based on a 70/30 blend of 2.0x 2028 EV/Sales and 0.65x EV/sales based on its perceived likelihood of the company’s timely commercial launch and scaling efforts. [[Category:Thesis]] [[Category:Equities]] __INDEX__
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