Tesla vs. QuantumScape: Which Stock is Likely to Power Ahead?

In August, U.S. President Joe Biden signed an executive order that intends to make 50% of all new vehicles sold in the United States electric by 2030, in order to reduce greenhouse gas emissions in the U.S.

While this has resulted in a renewed interest among investors in electric vehicle (EV) stocks, it has also brought to the forefront the problems faced by EV manufacturers including shortage of battery cells and semiconductor components.

I am neutral on both stocks mentioned in this article.

Using the TipRanks Stock Comparison tool, let us compare two companies: Tesla, an established player when it comes to EVs and which is also looking at manufacturing its own battery cells; and QuantumScape; and see how Wall Street analysts feel about these stocks.

Tesla (TSLA)

Tesla designs, develops, and manufactures EVs and is currently focused on developing battery technologies, increasing vehicle capacity and production, and improving its Autopilot and full self-driving (FSD) capabilities.

Tesla had a record second quarter as its quarterly net income surpassed $1 billion for the first time in its history. This year, the company has produced 386,759 of EVs so far and delivered 386,181 vehicles through Q2.

Tesla’s Q2 results beat Street estimates across the board. Revenue surged 98% year-over-year to reach $11.96 billion, ahead of the consensus estimate by $560 million. Non-GAAP EPS of $1.45 came in $0.47 above the Street’s forecast.

According to a company filing, Tesla’s production continues to be hampered by a shortage of semiconductors and other components. Indeed, the buyers of the company’s Model S are experiencing significant delays when it comes to vehicle delivery.

Tesla has stated in its company filing that its next phase of rising production depends on the construction of “Gigafactory Berlin and Gigafactory Texas, each of which is progressing as planned for production beginning in late 2021, as well as our ability to add to our available sources of battery cell supply by manufacturing our own cells that we are developing to have high-volume output, lower capital and production costs and longer range.”

Interestingly, Tesla is largely reliant on Panasonic for the manufacture and supply of lithium-ion battery cells. The company has tied up a deal with Panasonic (PCRFF) for Gigafactory Nevada to purchase the full output of cells from Panasonic at “negotiated prices.” (See Tesla stock chart on TipRanks)

The company is also in the process of producing its own 4680 battery cell, which was unveiled back in September. In July this year, according to an electrek report, TSLA presented an update to battery 4680 with new pieces of technology that could result in a more energy-dense cell. At the same time, it could halve the production costs.

At the company’s Q2 earnings call, TSLA’s management added, “we have successfully validated performance and the lifetime durability of the 4680 cells produced in Kato, and we’re continuing ongoing verification of that reliability.”

Wedbush analyst Daniel Ives, in a research report around a week back, acknowledged the delay in the opening of Gigafactory Berlin, due to “various bureaucratic hurdles/ environmental issues.” However, he also said that the factory could start online production over the next few months.

The analyst added that “Berlin and Austin are key manufacturing hubs that will be key in the long term Tesla EV story as we see down the road the company producing millions of EV vehicles per year vs. roughly 860k-900k (base to bull case) this year.”

Ives is bullish on the stock, with a Buy rating and a price target of $1000 (35.3% upside) on the stock.

Turning to the rest of the Street, analysts are sidelined on Tesla with a Hold rating based on 12 Buys, 7 Holds and 6 Sells.

The average Tesla price target of $697.90 implies 5.6% downside potential from current levels.

QuantumScape (QS)

QuantumScape is developing a proprietary next-generation solid-state battery technology for EVs and other applications. The company has established a 50:50 joint venture (JV) with Volkswagen AG (VWAGY) to enable the production of the company’s solid-state batteries on an industrial scale. Volkswagen has also committed to investing $300 million in QS, subject to certain conditions.

Yesterday, shares of QuantumScape rose 16% as the company made a key announcement: QuantumScape has signed another agreement with one of the top ten automotive original equipment manufacturers (OEM). As a part of this agreement, the OEM will partner with QS to evaluate the company’s prototypes of solid-state battery cells.

In addition, the OEM will also purchase 10 Megawatt Hours (Mwh) worth of battery capacity from the company’s pre-pilot production line facility, that is, QS-0, for “inclusion in pre-series vehicles, subject to satisfactory validation of intermediate milestones.”

In Q2, while the company did not earn any revenues, its loss per diluted share doubled to $0.12 per share, from a loss per diluted share of $0.06 per share in the same quarter last year.

In other key developments in Q2, the company also announced that it was in the process of testing its first commercially relevant 10-layer cells. Moreover, QS also tested its anode-free lithium-metal cells with a low-cost iron phosphate (LFP) cathode and confirmed that the company’s cell design and chemistry are compatible with LFP.

QuantumScape ended Q2 with $1.5 billion in liquidity and expects to enter next year with more than $1.3 billion in liquidity. The company also anticipates that its balance sheet will enable it to fully fund its pre-pilot production line facility, QS-0 in San Jose, California. It plans to “start QS-1 production at 1 GWh [gigawatt hours] scale and contribute capital to the subsequent 20 GWh expansion of the QS-1 facility.”

Over the long term, QS intends to deliver commercially relevant prototype samples to automotive OEMs next year, provide cells for test cars from QS-0 by 2023 and enter commercial production from 2024 onwards. (See QuantumScape stock chart on TipRanks)

Following the Q2 results, Robert W. Baird analyst Ben Kallo reiterated a Hold, but lowered the price target from $36 to $26 (7.8% upside) on the stock.

While the analyst remained encouraged by QS’s “continued progress, capital raises, and confidence around its milestones,” Kallo also pointed out the “heightened capital infusions into competing battery companies coupled with multiple compression in growth stocks,” resulting in the lowering of his price target.

Analyst Kallo believes that the company’s “unique solution[s] make it a possible winner in the race to build better battery technology in order to help propel electronic vehicle (EV) adoption.” Furthermore, the analyst expects that the total addressable market (TAM) for EV batteries could be worth $1 trillion by 2040, from approximately $23 billion last year.

Turning to the rest of the Street, analysts are cautiously optimistic on QuantumScape, with a Moderate Buy consensus rating, based on 1 Buy and 2 Holds.

The average QuantumScape price target of $34 implies 40.9% upside potential from current levels.

Bottom Line

While analysts are sidelined on Tesla, they are cautiously optimistic about QuantumScape. While both the companies are developing their own battery technology, it remains to be seen who the winner will be over the long term.

Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article​.

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