Optimal Energy Investment: QuantumScape versus NuScale Power (rephrased)
QuantumScape Corporation (QS, 8.30%) and NuScale Power LLC (SMR, 17.73%) are two innovative companies striving to disrupt traditional energy sectors with their advanced technologies. QuantumScape is advancing in the development of solid-state batteries, aiming to replace conventional lithium-ion batteries. On the other hand, NuScale is pioneering small modular reactors (SMRs), which could revolutionize nuclear energy.
Both enterprises debuted in the market through mergers with Special Purpose Acquisition Companies (SPACs). QuantumScape's stock started trading at $24.80 in November 2020, peaked at $131.67 the following month, but currently trades around $5 per share. On the other hand, NuScale's stock opened at $10.70 in May 2022, reached a low of $2 in 2023's November, but now trades at approximately $21. Let's explore why investors seemed less interested in QuantumScape and more favorable towards NuScale, and assess if the latter remains a profitable investment opportunity.
QuantumScape won't yield revenue until 2026
QuantumScape's solid-state, lithium-metal batteries utilize solid electrolytes, instead of the liquid electrolytes used in conventional lithium-ion batteries. This composition makes them less volatile, more resistant to heat, and faster in charging, but engineering and manufacturing these batteries is more intricate and costlier compared to their lithium-ion peers.
QuantumScape's first battery, the QSE-5, boasts an energy density of over 800 Wh/L (watt-hours per liter)- surpassing the average density of 300 to 700 Wh/L in lithium-ion batteries. The QSE-5 also offers rapid charging, as it can be charged from 10% to 80% in less than 15 minutes.
However, QuantumScape can't scale production until it upgrades its "Raptor" separator process to the "Cobra" process, ensuring reliability, boosting production efficiency, and enhancing total yields. The company expects to complete this upgrade by 2025, but commercial battery production won't commence until 2026.
For now, analysts anticipate QuantumScape's net losses to reach approximately $500 million annually through 2024, 2025, and 2026. Revenue is expected to commence in 2026, with the company forecasting $7 million as it starts shipping its commercial batteries.
QuantumScape remains supported by Volkswagen, but faces stiff competition from companies like Blue Solutions and prominent automakers such as Toyota Motor and Nio in the solid-state battery market. It's unclear if QuantumScape can ramp up production ahead of these rivals, contributing to its stock's 96% drop from its all-time high. Despite this, QuantumScape carries a substantial enterprise value of $1.9 billion.
NuScale sees potential catalysts
NuScale holds the only SMRs certified with a Standard Design Approval (SDA) from the U.S. Nuclear Regulatory Commission (NRC). Its compact, modular reactors can be conveniently deployed in locations unfit for large nuclear reactors.
Despite its existing NRC certification covering an electricity generation capacity of 50 megawatts, NuScale's SMRs require a cluster of reactors to generate at least 77 megawatts of electricity to become more economical than a coal-fired power plant. NuScale expects to secure the SDA for its 77-megawatt reactor designs - taking up about 1% of the space of a conventional reactor producing the same power output - by 2025.
NuScale's objectives are ambitious, and its high costs forced it to halt construction on its six nuclear reactors in Idaho last year and dismiss 40% of its workforce in 2023. This mass layoff led to a U.S. Securities and Exchange Commission (SEC) investigation of NuScale's employment, severance, and confidentiality agreements.
Nevertheless, NuScale's stock enjoyed price growth over the past year due to new catalysts. NuScale secured a new supply deal with South Korea's Doosan Enerbility for SMR components, received offers of up to $900 million in cost-shared funds from the U.S. Department of Energy (DOE) to speed up development of more nuclear SMRs, and partnered with Amazon and Energy Northwest (a collection of public utilities) to create four SMRs for supporting Amazon's rising energy needs.
Analysts anticipate Nintendo's revenue to stay static at $23 million in 2024, but predict a substantial surge to $102 million in 2025. However, NuScale remains deeply unprofitable, and its $2 billion enterprise value represents 20 times its projected 2025 sales.
The better buy: NuScale Power
Both stocks incorporate a high degree of speculation. Nonetheless, if forced to choose between the two, I would side with NuScale because it presently generates revenue, encounters less competition, and features clearer imminent catalysts. I wouldn't consider investing in QuantumScape until it completes its costly Cobra upgrade and begins to commercialize its battery production.
The financial challenges facing QuantumScape, such as annual net losses predicted to reach $500 million until 2026 and the company's reliance on revenue starting in 2026, might be deterring investors. (finance, money)
Investors might be more drawn to NuScale due to its current revenue generation and the potential for increased profits with the expected SDA approval for its 77-megawatt reactor designs by 2025. (investing)
){kind=link}