Executive Summary / Key Takeaways

• QuantumScape is pioneering solid-state lithium-metal battery technology with demonstrated performance advantages over conventional lithium-ion, including higher energy density (844 Wh/L), faster charging (10-80% in ~12 mins), and enhanced safety (thermal stability up to 300°C).
• The company is transitioning from prototype to product, achieving key milestones like shipping Alpha-2 samples and beginning low-volume B0 production of its QSE-5 cell, targeting higher volume B1 samples in 2025 to support a prospective customer launch program in 2026.
• A strategic shift to a capital-light licensing model, highlighted by the landmark PowerCo (Volkswagen Group (VOW)) collaboration, is expected to accelerate industrialization by leveraging partner capital and expertise, significantly extending QuantumScape's cash runway into the second half of 2028.
• Operational scale-up is progressing with the ramp of the Raptor separator process to baseline and the development and expected 2025 baseline integration of the higher-throughput Cobra process, seen as the pathway to gigawatt-hour scale production.
• Despite significant technological progress and a strengthened financial position, QuantumScape remains a pre-revenue, development-stage company facing substantial risks related to manufacturing scale-up, yield improvement, cost control, supply chain, intense competition from established players and alternative technologies, and successful execution of its licensing strategy.

The Promise of Solid-State: Addressing the EV's Core Challenge

QuantumScape Corporation is on a mission to revolutionize energy storage, focusing intently on the development and commercialization of its solid-state lithium-metal batteries. Founded in 2010, the company transitioned to public markets in late 2020, bringing increased visibility and resources to its ambitious goal. At its core, QuantumScape seeks to overcome the fundamental limitations of today's conventional lithium-ion batteries – constraints on range, charging speed, safety, and cost – which management believes are impediments to broader electric vehicle (EV) adoption beyond early enthusiasts. The EV market, while exhibiting undeniable long-term secular growth, currently faces headwinds from macroeconomic factors and evolving consumer expectations, validating the need for a step-change in battery technology.

QuantumScape's proposed solution centers on a proprietary solid-state lithium-metal battery architecture. A key differentiator is its anode-free design, enabled by a unique ceramic separator. Unlike traditional batteries that require a pre-formed anode material, the lithium-metal anode in QuantumScape's cells is designed to form in situ during the first charge, drawing lithium from the cathode material. This approach holds the potential for a meaningful cost of goods sold (COGS) advantage at scale by eliminating the anode bill of materials and associated manufacturing steps.

The tangible benefits demonstrated by QuantumScape's prototype cells are central to its investment thesis. The QSE-5 cell, the company's first targeted commercial product with approximately 5 amp-hours capacity, has shown impressive performance. B0 samples have achieved an energy density of 844 watt hours per liter (Wh/L) and 301 watt hours per kilogram (Wh/kg). Fast charging capability is critical for EVs, and Alpha-2 prototypes demonstrated charging from 10% to 80% state of charge in less than 15 minutes, a figure improved to just over 12 minutes with QSE-5 B0 samples. The technology also shows strong discharge power, with Alpha-2 prototypes capable of up to 10C rates, translating to significant acceleration potential. Furthermore, performance at low temperatures is a notable advantage, with the potential for good energy density and range down to minus 25 degrees Celsius. Safety is another key area of differentiation; the ceramic separator contributes to enhanced safety, with prototype cells demonstrating thermal stability up to 300°C, significantly higher than the 174-185°C range where conventional lithium-ion cells tested by the company burst into flame. The company has also made progress in reducing the externally applied pressure required for cell operation, bringing it down to 0.7 atmosphere in Alpha-2 prototypes, a level compatible with existing EV battery pack designs, while targeting zero-pressure designs for consumer electronics.

Ongoing research and development efforts focus on refining all aspects of the cell. This includes continuous improvement of the cathode, exploring alternative materials like LFP and advanced processing methods, and developing catholytes to optimize performance across various metrics. Significant work is also dedicated to enhancing the quality, consistency, and reliability of the proprietary separator and the overall cell manufacturing process, including efforts to reduce defects and improve material inputs. These technological advancements form the bedrock of QuantumScape's competitive positioning and its potential to capture a significant share of the future battery market.

From Lab to Line: Operational Progress and Strategic Scale-Up

QuantumScape's journey involves not just developing a breakthrough technology but also demonstrating the ability to manufacture it at scale. The company's operational focus is centered on its pilot line in San Jose, California, which serves multiple critical functions: providing samples for internal development and customer testing, informing future manufacturing processes and equipment selection, supporting initial QSE-5 production, and facilitating technology transfer.

A key operational achievement is the development of fast separator production processes, named Raptor and Cobra. The Raptor process, the first implementation of this technology, was successfully ramped and became the baseline process in the third quarter of 2024. Raptor represents a significant improvement over previous generations in terms of film quality, performance, heat treatment time, and energy consumption. It also serves as a crucial learning platform for the next-generation Cobra process. Cobra is designed to leverage the fundamental process innovations of Raptor with specialized, higher-throughput equipment, dramatically reducing heat treatment time from days or hours to minutes, with improved efficiency and a smaller equipment footprint. Equipment for Cobra began arriving in Q2 2024, and the heat treatment equipment was released by the end of 2024, setting the stage for Cobra to enter baseline production in 2025. This transition is considered necessary to enable the higher volumes of QSE-5 prototype production planned for 2025.

Product development milestones are tightly linked to manufacturing progress. Following the delivery of A samples in 2022 and Alpha-1 prototypes in 2023, QuantumScape began shipping 6-layer Alpha-2 prototype cells to automotive customers in the first quarter of 2024. These Alpha-2 cells, incorporating higher loading cathodes and improved packaging, represent the core design of the planned QSE-5 product and serve as a crucial demonstration platform for prospective customers, enabling rapid feedback for iterative improvement. Building on this, the company commenced low-volume B0 prototype production and shipments of QSE-5 cells in the fourth quarter of 2024, achieving a major goal for the year. The next significant operational milestone is the production and shipment of higher-volume QSE-5 B1 samples in 2025. These B1 samples are intended to reflect a more mature set of cell performance and manufacturing specifications and will support the demonstration phase of a prospective customer's launch program, currently targeted for 2026.

Recognizing the immense capital requirements and industrial expertise needed to scale battery production to gigawatt-hour levels, QuantumScape made a strategic decision in early 2024 to pursue a capital-light licensing business model. The cornerstone of this strategy is the landmark collaboration agreement signed with PowerCo, the battery manufacturing company of the Volkswagen Group, in July 2024. This agreement superseded a prior joint venture structure and established a framework for industrializing the QSE-5 technology platform. The collaboration involves a joint team of approximately 150 experts from both companies, initially working at QuantumScape's facilities in San Jose, with plans to transition to a PowerCo site as technology transfer progresses. PowerCo brings significant expertise in manufacturing industrialization, supply chain management, production equipment, and automation, complementing QuantumScape's deep knowledge of solid-state battery technology.

Upon achieving satisfactory technical progress in this collaboration phase, the parties intend to enter into a non-exclusive, royalty-bearing IP license agreement. This agreement would grant PowerCo the right to manufacture and sell batteries using the QSE-5 technology, initially for up to 40 GWh per year, with an option to expand by an additional 40 GWh. A key financial component of this potential license is a $130 million royalty prepayment from PowerCo, contingent on meeting specific technical milestones. This strategic shift to licensing is expected to result in lower costs and capital requirements for QuantumScape compared to a joint venture model of similar output, allowing the company to leverage its partner's balance sheet and industrial scale while focusing its resources on innovation and technology transfer. The non-exclusive nature of the PowerCo agreement also positions it as a potential template for future licensing deals, and QuantumScape is actively engaged in discussions with two other automotive OEMs regarding similar arrangements, as well as building relationships with technology partners across the battery value chain.

Financial Footing and Forward Outlook

As a development-stage company, QuantumScape has not yet generated revenue from its principal business activities and continues to incur significant operating losses. For the three months ended March 31, 2025, the company reported a loss from operations of $123.6 million and a net loss of $114.4 million, compared to $131.9 million and $120.6 million, respectively, for the same period in 2024. Operating expenses reflect the company's intense focus on R&D and scaling operations. Research and development expenses increased by $11.7 million (14%) in Q1 2025 compared to Q1 2024, driven primarily by higher depreciation and non-cash stock-based compensation. General and administrative expenses decreased significantly by $20.1 million (42%), largely due to the net settlement of a securities class action litigation accrual in the prior year period, partially offset by an increase in stock-based compensation. The company's accumulated deficit reached approximately $3.5 billion as of March 31, 2025, and management expects to incur significant expenses and continuing losses for the foreseeable future as it invests in development, manufacturing capabilities, and operational functions.

Liquidity remains a key strength for QuantumScape. As of March 31, 2025, the company held approximately $860.3 million in cash, cash equivalents, and marketable securities. Cash used in operating activities was $60.7 million in Q1 2025, primarily driven by the net loss offset by non-cash expenses. Investing activities provided $62.0 million, mainly from marketable security maturities exceeding purchases and capital expenditures. Financing activities provided $11.4 million, primarily from the exercise of stock options.

Based on its current business plan, QuantumScape projects its cash resources will last into the second half of 2028. This extended cash runway, pushed out by six months from previous guidance, is largely attributed to the strategic shift to the capital-light licensing model with PowerCo. The benefits include PowerCo funding the CapEx for gigawatt-hour scale facilities (freeing up capital previously allocated by QS), PowerCo contributing resources and personnel, and the potential $130 million royalty prepayment. Additionally, ongoing improvements in operational efficiency contribute to conserving cash. The company maintains access to further capital through a shelf registration statement and an at-the-market (ATM) offering program, under which it raised $1.0 million in Q1 2025. While the licensing model is expected to reduce QuantumScape's direct capital requirements for manufacturing scale, significant future CapEx (beyond 2025) is anticipated to be funded by partners as part of commercialization programs.

For 2025, QuantumScape has provided specific guidance: CapEx is forecast between $45 million and $75 million, and adjusted EBITDA loss is expected between $250 million and $280 million. This guidance reflects a planned reduction in overall spending compared to 2024, aligning with the capital-light strategy and focusing resources on key development and industrialization milestones, including bringing Cobra into baseline production, installing higher-volume equipment, and shipping B1 samples to support the prospective 2026 launch program.

Competitive Arena and Inherent Risks

The battery market is a highly competitive and rapidly evolving landscape. QuantumScape operates within this arena, facing competition from multiple fronts. Established players in the conventional lithium-ion battery space, such as Panasonic Holdings (PCRFY) and those integrated within major automotive OEMs like Tesla (TSLA) and Toyota Motor (TM), possess significant manufacturing scale, established supply chains, and strong financial resources. These competitors continue to drive down costs and improve the performance of existing lithium-ion technology. QuantumScape's differentiated solid-state technology aims to leapfrog these conventional solutions by offering superior performance characteristics like energy density, charging speed, and safety. However, the challenge lies in bringing this advanced technology to market at a competitive cost and scale.

Within the emerging solid-state battery segment, QuantumScape faces direct competition from companies like Solid Power (SLDP) and numerous other startups and research initiatives, including those backed by major automotive OEMs and government-subsidized consortiums (such as China's All-Solid-State Battery Collaborative Innovation Platform). While QuantumScape believes its "no-compromise" performance, particularly the combination of high energy density, fast charging, and safety at practical pressures, differentiates it from competitors who may report strong results on isolated metrics, these rivals are also actively developing their own solid-state or advanced battery technologies (e.g., silicon-anode approaches) that could pose significant competition if successfully commercialized.

QuantumScape's competitive advantages lie primarily in its proprietary technology and the demonstrated performance of its prototypes. The strategic shift to a licensing model, exemplified by the PowerCo partnership, is a direct response to the capital intensity of competing in manufacturing scale. By leveraging partners' industrial expertise and balance sheets, QuantumScape aims to accelerate market penetration and overcome its own limitations in funding massive production facilities. However, this model also introduces risks, including reliance on partner execution, potential conflicts of interest (as partners may also be competitors or have different strategic priorities), and challenges in verifying royalty payments.

Significant risks remain on QuantumScape's path to commercialization. Technical hurdles in achieving consistent quality, reliability, and yield at higher manufacturing volumes are substantial. Scaling the proprietary separator and integrating complex, unproven machinery into high-throughput processes presents operational risks, including potential delays and cost overruns. Establishing robust supply chain relationships for key materials and components, particularly in a globally competitive and geopolitically sensitive environment subject to tariffs and trade restrictions, is critical. The company's success is also dependent on attracting and retaining additional customers and licensees beyond its current partners, which may be challenging given the long automotive qualification cycles and the competitive landscape. As a pre-revenue company with a history of losses, QuantumScape's financial health is vulnerable to delays and increased costs, requiring continued access to capital. Furthermore, the company faces risks common to public companies, including stock price volatility, litigation, and the burdens of regulatory compliance.

Conclusion

QuantumScape stands at a pivotal juncture, having demonstrated compelling performance characteristics with its solid-state lithium-metal battery technology and charting a strategic course towards industrialization via a capital-light licensing model. The achievement of key operational milestones, including the ramp of the Raptor process and the commencement of QSE-5 B0 sample production, coupled with the landmark PowerCo collaboration, underscores tangible progress towards bringing this next-generation technology to market. The projected extension of the cash runway into the second half of 2028 provides a longer financial leash to pursue these objectives.

However, the path ahead is fraught with challenges inherent in scaling a disruptive technology in a highly competitive industry. The ability to transition from prototype to high-volume, low-cost manufacturing with consistent quality and yield, secure critical supply chains, and successfully execute the licensing strategy with multiple partners will be paramount. Investors in QuantumScape are betting on the company's ability to overcome these significant technical, operational, and commercial hurdles, leveraging its technological edge and strategic partnerships to capture a meaningful share of the future battery market. The coming years, particularly the integration of Cobra and the progress towards the 2026 demonstration target with a prospective launch customer, will be critical indicators of whether QuantumScape can translate its laboratory breakthroughs into a commercial revolution.