Bloomberg Opinion-One of the most disturbing developments in the business in 2020 is the tendency for electric vehicle companies to list on stock exchanges before they first generate revenue. Although it is standard practice for research life science companies, it is unusual for the automotive industry to go public before purchasing a purchasable product.
However, pre-revenue companies such as Nikola Corp. and Fisker Inc. have achieved multi-billion dollar valuations. Now, QuantumScape Corp., a California-based battery start-up company, has pushed the craze for electric vehicles to a new level.
Founded ten years ago by Stanford University scientists, QuantumScape became a public company in November after merging with Kensington Capital Acquisition Corp., a special purpose acquisition company, with financial support from Volkswagen. The company will not generate considerable revenue until 2026, but its valuation has reached 43 billion U.S. dollars, which is a fully diluted value of 51
From a climate perspective, it is great for investors to invest money in power transportation. The promise of these wealth will encourage others to join the cause of emissions reduction. However, the speculative fever that promotes Tesla Inc. and China’s NIO Inc. (NIO Inc.) also seems to have attracted QuantumScape investors.
In the past week, there were an average of $2.8 billion in battery company stock transactions every day. This is more than 1.2 trillion US dollars in market value than Alphabet Inc. Technical factors may have contributed to QuantumScape’s soaring: Only a small part of the shareholder register is available for trading. (7) For retail investors who buy stocks at these levels, there is still a long way to go.
First, the good news. In laboratory tests, QuantumScape’s “solid-state” batteries have achieved encouraging results, which show that innovative chemical methods can one day enable electric vehicles to travel farther, charge faster, and at lower cost. (2) This is exciting because it is becoming more and more difficult to obtain considerable performance improvements from traditional lithium-ion batteries. CEO Jagdeep Singh’s team of scientists seems to have achieved real success.
However, when the SPAC transaction was announced in September, all parties believed that the $3.3 billion valuation was appropriate. (6) For a company with fewer than 250 employees and no finished products or factories, this seems to be sufficient. After the stock market surge, the value of QuantumScape is now more than 10 times the initial value, surpassing automakers such as Ford Motor Company and battery giants such as Panasonic and Samsung SDI.
Those who bought Kensington SPAC shares in August received a return of 1,060%, and the QuantumScape warrants that were once sold for 80 cents are now worth 50 times the latter. (3) The three founders of Stanford University-Singer, Fritz Prinz and Tim Holm-have become paper billionaires. Volkswagen, which invested approximately US$300 million in QuantumScape, will own a 23% stake, valued at nearly US$10 billion. (4)
Like SPAC, Kensington’s sponsor is also doing well, the sponsor is controlled by former Moelis & Company and RBC Capital Markets investment banker Justin Mirro (Justin Mirro). It obtained stocks and warrants worth more than US$900 million, which is a huge return on its investment of about US$7 million, and it only took a few weeks to realize the return. (5)
Other prominent supporters of QuantumScape include venture capital firms Khosla Ventures and Kleiner Perkins, Microsoft co-founder Bill Gates, hedge fund billionaire George Soros’ Quantum Partners, and investor Jeremy Grantham (Jeremy Grantham). JB Straubel, the former chief technology officer of Tesla, serves as a board member. Such recognition and years of experience in research and development show that this is more than just publicity. In stark contrast to Nikolai, Nikolai’s technology (or lack of technology) is the subject of a short report. (8)
Volkswagen’s production expertise should pave the way for commercialization. The partners plan to start production in a small pilot plant in 2024 and then in a larger plant two years later. But there is no guarantee of success.
So far, QuantumScape only produces single-layer batteries, and it still needs to find a way to stack more than 100 batteries together to create battery packs. Competitors such as China Modern Ampere Technology Co., Ltd. will not stand idly by. CATL’s stock has also risen sharply this year, with a market value of approximately $110 billion.
One advantage of SPACs is that they can issue detailed multi-year financial forecasts, while companies listed through traditional initial public offerings usually only release historical financial data. Given QuantumScape’s major production obstacles, it is unwise for investors to rely too much on these estimates, but they will wait a long time no matter what happens:
Even assuming that QuantumScape’s forecast proves to be accurate, its valuation seems to be out of touch with reality. The market value is equivalent to 13 times the revenue the company hopes to generate in 2027. Tesla’s stock is also in an incredible bubble, but relatively speaking, its price-to-earnings ratio is slightly lower than 13 times its expected revenue for the next 12 months. Volkswagen, which will initially be QuantumScape’s largest customer, is valued at only 0.3 times next year’s sales.
QuantumScape’s batteries may eventually promote the development of next-generation electric vehicles, but maintaining this valuation may be more challenging than advanced battery chemistry.
(1) The fully diluted 447.5 million shares include outstanding stock options, restricted stock units and other stocks that can be issued to the public
(2) The public shareholders of SPAC only account for 5% of the shareholder register. Existing QuantumScape shareholders hold 82% of the shares, some of which are not sellers and are not prohibited from sale.
(3) The design of QuantumScape does not require a manufactured anode, thereby reducing costs. A lithium metal anode is formed during charging.
(4) After adjustment based on QuantumScape’s cash
(5) If QuantumScape chooses to redeem, the warrants will be converted to a maximum of 0.365 shares
(6) According to S-1, Volkswagen owns 71 million QuantumScape shares, but will issue another 15 million shares on the premise of reaching the technical performance milestone.
(7) Kensington sold the IPO shares on June 30 and signed a non-binding letter of intent with QuantumScape only three weeks later
(8) For example, QuantumScape also has more patents.
This column does not necessarily reflect the views of the editorial department or Bloomberg and its owners.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked in the Financial Times.
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