Shares of QuantumScape (QS) are under pressure on Tuesday after Morgan Stanley analyst Adam Jonas downgraded the stock to Equal Weight and cut his price target on the stock to $40. Following the work with his firm's global battery team across 10 sectors to analyze the greater than $500B battery total addressable market and map the "value chain from the mine to the highway line," the analyst now sees it as appropriate to adjust his medium and long-term assumptions for QuantumScape given the threat of competition and technological risk.
MOVING TO THE SIDELINES: Morgan Stanley analyst Adam Jonas downgraded QuantumScape to Equal Weight from Overweight with a price target of $40, down from $70. After Jonas worked with his firm's global battery team across 10 sectors to analyze the greater than $500B battery total addressable market to create a Global Battery Portfolio of 71 names and map the "value chain from the mine to the highway line," he now sees it as appropriate to de-risk his medium and long-term assumptions for QuantumScape given the threat of competition and technological risk. While the analyst continues to view QuantumScape as a technological leader in solid state batteries, he has "modestly haircut" his expectations for the company's ramp-up to scale. Overall, the analyst noted that his firm now has a greater number of names under its coverage with exposure to the battery theme, some offering a better risk/reward than QuantumScape.
BATTERY BLUE PAPER: "The birth of the battery economy is reshaping century-old supply chains and creating a new industrial order," Morgan Stanley said in a report titled "The New Oil: Investment Implications of the Global Battery Economy." The firm believes that COVID-19 significantly accelerated the progress of the global battery economy, and estimates that the total addressable market for EV batteries by 2040 will be about $525B. Furthermore, Morgan Stanley identified two primary "force vectors" for change in the global battery industry, namely technology and policy/ESG. Together, these drivers contribute to an industrial "flywheel" that accelerates capital formation, lowers costs, and, ultimately, provides a path to commercial scale. Today's EVs are beginning to approach the acquisition cost and total cost of ownership of prevailing internal combustion engine technology, the firm noted, adding that over the next 5 to 10 years, the emerging battery economy is a story of BEVs becoming vastly superior in cost and capability to internal combustion engine cars.
Among the 71 names most exposed across the battery value chain that were identified by the team of 25 analysts behind Morgan Stanley's report are QuantumScape, Freeport McMoRan (FCX), Tesla (TSLA), Volkswagen (VWAGY), BMW (BMWYY), Daimler (DDAIF), GM (GM), Li Auto (LI), Stellantis (STLA), Toyota (TM), Xpeng (XPEV), STMicroelectronics (STM), and Analog Devices (ADI).
PRICE ACTION: In Tuesday morning trading, shares of QuantumScape have dropped more than 9% to $36.89.