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QuantumScape
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== Longer term financials == '''Proprietary design could help with BoM reduction''' In a battery cell, cathode is typically about 40% of the cost, possibly reaching 50% with the recent raw materials inflation. QuantumScape’s anode-less design could enable it to deploy the same cathode materials as a standard lithium-ion battery cell, without the material price and manufacturing cost of the anode. The incremental raw material and manufacturing cost of the solid-state separator would be a critical determinant of whether QS is able to achieve BoM reduction for its batteries, and where their eventual cost settles compared with traditional li-ion batteries. Just a few tens of micrometers thick, the ceramic separator is expected to prevent the formation of dendrites while still allowing lithium ions to travel back and forth. Currently, QuantumScape expects the cost of the separator to be roughly $10-$12 per Kwh. But large questions remain regarding manufacturability of the cells using this separator at scale. Below Deutsche Bank illustrates its expectations of COGS composition for QS’ battery cells from 2025 onwards. Overall, Deutsche Bank expects total cost of goods sold to decline by ~23% starting 2026, followed by 14% and 14% decline in 2027/2028, respectively. '''Volume growth and forecasts''' Deutsche Bank expects QuantumScape to remain largely on target for the QS-1 Pilot and QS-1 Expansion in terms of both capacity and pace of ramp. However, Deutsche Bank is being more cautious about the ramp to 30Gwh of capacity targeted for 2027 initially for the QS-2 line. Instead, Deutsche Bank is modelling more conservatively only half of production, at 15Gwh and 35Gwh for 2027/2028, and ramping to 70Gwh eventually by 2030. For reference, QS plans to ramp the QS-2 line to 70Gwh by 2028. Given that the company is still in a testing and validation stage, Deutsche Bank feels a level of conservatism is needed in the model to account for delays and uncertainties on the timeline of the manufacturing scale. In the initial two years of the QS-1 pilot, Deutsche Bank expects minimum revenue contribution, at around $17m and $46m for 2024/2025, respectively. The addition of QS-1 Expansion will help ramp revenue, to $383m in 2026. Larger scale revenue ramp, however, won’t materialize until QS adds the QS-2 line to its production capacity, by which then Deutsche Bank forecasts $2B+ in 2027 and $4B+ for 2028. Deutsche Bank anticipates that QS will yield positive gross margin in the low-teens once the QS-1 Expansion line starts to ramp, with a more dramatic improvement in margin with the addition of the QS-2 line starting in 2027, at an aggregate gross margin of 20.5% and increasing steadily to the outyear as manufacturing efficiency scales with capacity expansion. Deutsche Bank also doesn’t expect FCF to turn positive until 2028, when total volume ramps to 56Gwh in capacity, with more substantial contribution from the QS-2 line. As such, Deutsche Bank anticipates that FCF will remain in -$400m to -$600m range from 2024-2027. In the table above, we’ve outlined QS’ initial expectations for revenue and profit (based on its estimate of the figures on a consolidated basis). In comparison, Deutsche Bank is generally on the more cautious end and model closer to 50% of QS’ revenue expectation in the outyears, starting 2027 and beyond. In particular, Deutsche Bank is modelling for revenue to reach $2B in 2027, while QS’ estimate suggests $4B+ on a consolidated basis starting in the same year. Consensus revenue for 2027 is in-line with its forecast. Heading into 2028 and beyond, Deutsche Bank remains on the conservative side vs. consensus on the top-line but also note that estimate comparability might be less meaningful given scarcity in the number of estimates contributing to consensus. On the profitability end, Deutsche Bank expects both gross margin and EBITDA margin to remain below QS’ initial expectations, modeling for EBITDA margin to reach ~6% and 16%+ for 2027/2028 vs. 25% anticipated by the company in both years. Meanwhile, we’re modeling more in-line with consensus for EBITDA, in single-digit margin for 2027, mid-teens margin for 2028. '''Industry-wide trends in battery costs''' Considerably higher raw material and component prices are impacting li-ion battery costs negatively in 2022 and this could continue into next year. According to BNEF, the volume-weighted average battery price will increase for the first time this year in nominal terms, to $135/kWh. The higher prices expected in 2022 and 2023 could potentially delay the point at which pack prices of traditional batteries reach $100/kWh. At the cell level, per kwh price had declined by 62% since 2015. The trajectory is likely to continue over the longer term, and this expectation directionally coincides with its forecasts for Quantumscape. However, given the likely higher performance metrics of QS batteries, Deutsche Bank believes the company will likely price its offering at a premium on a per Kwh basis relative to the price trajectory of conventional lithium-ion batteries. '''Pricing expectations for QS''' On a per kWh basis, Deutsche Bank expects initial revenue to be higher than the outyears, at $112/kWh but steadily declining to $71 by 2030, representing -5% CAGR starting 2026 onwards. With COGS declining over time, QuantumScape will have to price down in order to remain competitive both with its next-gen battery peers as well as the price/cost trajectory of the existing lithium-ion batteries. Even then, Deutsche Bank feels there is a real possibility for the cost curve of conventional lithium-ion batteries to reach close to or even below solid-state prices. But again, the performance metrics for QS batteries should stay superior to conventional lithium-ion batteries which could justify its higher level of pricing power. Longer term, it will be important for QuantumScape to provide a flexible pricing structure based on performance metrics, targeting different segments of the EV market.
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