Another interesting valuation post from Reddit.
Quantumscape valuation exercise (BEAR CASE)
Inspired by beerion's work - here goes my version (which supports his). Beerion's bear case breakdown is exceptionally well-reasoned. I completely agree that the downside scenario is starting to look implausible given QuantumScape’s progress, and the point about the stock’s asymmetry resonates strongly with my own analysis. I was working on my own back-of-the-envelope valuation the past few days and here are my separate thoughts, which I think just corroborate beerion's case:
The bear case of $5.76B-$7.26B ($10.95-$13.81/share)—derived from $3.35B in IP costs plus time-value adjustments—sets a compelling floor. I’d argue it’s conservative, and my analysis, rooted in the non-China TAM and QS’s licensing model, suggests a higher baseline. The current $2.6B market cap (sub-$5/share, \~$1.6B operating value after $1B cash) implies a near-collapse probability that doesn’t hold up. Using a 25% discount rate—standard for pre-revenue VC risk—here’s my take, factoring in a 2027-2035 ramp-up:
* **Non-China TAM by 2035**: Per BloombergNEF, McKinsey, and IEA, the total battery TAM is 7 TWh ($550B), split evenly between China and non-China at $275B each. QS’s non-China focus targets $275B, and a 5% capture equates to $2.5B-$3.0B annual revenue (350 GWh at \~$10/kWh)—achievable with PowerCo’s 80 GWh deal and two OEMs adding \~100 GWh each (280 GWh "committed" so far).
* **Revenue and Earnings Ramp-Up**: Revenue scales from $0.5B in 2027 (post-commercialization) to $3.5B by 2035, with $400M annual spend (all OpEx, $0 CapEx conservatively). Earnings ramp from $0.1B to $3B:
* 2027: $0.5B revenue - $0.4B = $0.1B earnings
* 2035: $3.5B - $0.4B = $3B earnings
* Linear growth: \~$0.375B revenue/year. The $1B cash (per 10-K, $910.8M) is deployed by 2027, extending the runway to 2028 and supporting this ramp.
* **Present Value at 25% Discount Rate**:
* *Discounting Terminal Valuation*: At 2035, $3B earnings × 10x = $40B terminal value. Discounted back 10 years at 25%: $40B / (1.25)\^10 ˜ $4.3B. Adding $1B cash (deployed), \~$5.2B today.
* *Discounting Cash Flows*: Discount 2027-2035 earnings at 25%, plus perpetuity:
* 2027: $0.1B / (1.25)\^2 ˜ $0.06B
* 2031: $1.5625B / (1.25)\^6 ˜ $0.41B
* 2035: $3B / (1.25)\^10 ˜ $0.32B
* Total (2027-2035): \~$2.92B.
* Perpetuity (2035 onward): $3B / 0.25 = $12B, discounted to today: $12B / (1.25)\^10 ˜ $1.29B.
* Total PV: $2.92B + $1.29B ˜ $4.21B + $1B cash = $5.21B.
* *VC Valuation*: Discount $40B at 25% to $4.3B, add $1B cash, and apply a 25%-50% premium ($1.1B-$2.1B) for IP ($3.35B R&D) and licensing traction (280 GWh = $2.8B revenue). Total: $6.4B-$7.4B.
* *Range*: $5.2B-$7.4B today at 25%.
* Note: An "IP premium valuation DCF" refers to using the Discounted Cash Flow method to value intellectual property (IP) by incorporating a premium into the projected cash flows, reflecting the added value that the IP provides beyond a standard asset due to its unique characteristics like market dominance, technological advantage, or brand recognition.
* **Market-Implied Discount**: The $2.6B cap is a 50%-65% discount to $5.2B-$7.4B, implying a \~50% failure rate. Yet PowerCo’s $130M royalty, two OEM deals, and a 2028 cash runway (per 10-K) make this laughable. Post-revenue confirmation (2026), a 25% rate could justify $20B-$35B, closer to the $25B-$30B TAM potential.
* **Lowering Discount Rates**: If licensing cash flows are confirmed for 2026-2027 and pre-revenue risks (e.g., commercialization, scale-up) start to extinguish, the 25% rate could drop to 15%-20%, lifting fair value to $20B-$35B or higher—reflecting QS’s de-risked, capital-light model.
The $3/share floor (with $2/share cash) discussed by beerion limits downside to \~30%, while my $5.2B-$7.4B at 25% offers 2-3x upside—conservative next to a $20B-$35B re-rating once licensing revenue kicks in (or is confirmed). QS’s shift to a capital-light model and 280 GWh committed capacity shred any bear case. The market’s \~50% implied rate is nuts—revenue confirmation could trigger a massive re-rating. Beerion's asymmetry nails it—looking forward to the base and bull cases.
Just need to stay strong, be cold blooded and hold your position.
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