The concept of ESG investing is now in full tilt on Wall Street. Therefore, investing in the electric vehicle (EV) space continues into 2021. Many, like QuantumScape’s (NYSE:QS) QS stock, short-cut the IPO process through special purpose acquisition corporations (SPAC).
In the next few years, it is imperative that we improve on our battery technology. Otherwise, the EVs will have a hard time beating the internal combustion (ICE). That’s where QuantumScape comes in. QS stock is still young but has already seen its fair share of battles. It sounds like if they succeed, they will revolutionize EVs and how we use them. I am a skeptic, but not a hater. I would rather trade it than invest in it.
Even though they could do it, I am not willing to invest time or funds long term on those odds. But since it moves really fast, I would actively trade around the short term opportunities when they present themselves.
I am a former electrical engineer. Even though I am not a battery expert, my instinct tells me their goals seems unattainable. I caution against chasing the pot of gold at the end of this rainbow. The tech is cool but I don’t see it working for EVs soon.
Why QS Stock Could Soar in the Future
If I am wrong and they succeed, they will have a fortune. The current battery technology has come a long way for sure. But the leap from that into QS’s solid state tech would be like hitting warp speed on a space ship.
The problem is that there is a mountain of hurdles to overcome like operating temperatures and duty cycles. It’s one thing to have a tiny battery that could deliver more power. It is another to actually do it at scale and under any conditions, not just in the lab. Also it would need to last long enough especially in an EV application.
This is all to say that the current fundamentals are an iffy binary proposition. They will either do it or fail. Consequently owning QS stock now is a pure bet on what could come later. There are other headline risks, but don’t take my word for it. If you look it up on Yahoo Finance, you see pages and pages of shareholder lawsuit deadline notices. Even if they turn out to be baseless, they are a distraction. Management has its hands full enough with their business, they don’t need side projects like this.
In spite of all the negativity, QS stock has its fanatics. If you don’t believe me, then try to dis it on Twitter (NYSE:TWTR).
Onus Is on Management to Silence the Doubters
I found no comfort from CEO Jagdeep Singh in his interview with CNBC earlier this month. One sentence stood out in particular as it re-enforced my “binary” assessment of QS stock today. I expected him to exude confidence in their success. Instead I heard him say “…if we can deliver this technology in real cars on real roads” and that is concerning. His “if” statement basically confirmed the binary eventuality with QuantumScape. The stock price today is a pure bet on future success, not actual facts.
That is okay and I am not knocking the investment thesis now. But it’s an important piece of information for those thinking about adding to their risk. I caution investors that “averaging down” on an unproven stock could lead to total devastation. It doesn’t work like say in Apple (NASDAQ:AAPL) or even Tesla (NASDAQ:TSLA). Both of these stocks have current fundamentals and their existence is not in jeopardy.
Also Mr. Singh spent more time defending his stock and their filings than his tech. He should have tried to convince the viewers that they will succeed in delivering a product.
Long term investors who have great conviction should just go with their gut on this. My apprehension is an opinion not fact. It will take years before anyone really has an update on that. QuantumScape is expecting production no sooner than 2024. That is an eternity in terms of how fast technology is progressing. What is cool and relevant now will be almost obsolete by then.
Trade the Action While the Science Develops
I am confident that there will be resistance for QS stock going into $55 then $60 per share. But if the bulls can prevail there they can rekindle a rally to challenge $75 for share. Conversely, if the bears are able to break through the recent lows, then there is another big leg lower.
QS stock fell hard on Monday. This is even after it has already shed more than 60% from its December highs. Technically, the bulls are on their heels and the target could eventually be $30 per share. Staying long this stock or buying the dip takes a lot of courage. Clearly it moves fast in both directions. From November it spiked 480% in about a month. Then the correction came fast and trapped investors at incredible altitudes.
There was a bounce earlier this month but it faded. Those who believe in the company can risk some money on a potential double bottom. But they should acknowledge the threat that still looms below. Conversely, those eager to short need to implement very tight stops. Just look at what happened to those who shorted GameStop (NYSE:GME). This is too a crazy market to be brave or reckless.
Luckily, investors now have tools to limit their exposure. QuantumScape stock has fairly liquid options contracts. In some cases they are safer than actual equities. There allow participation at a fraction of the out-of-pocket risk needed to purchase stock.
The conclusion today is that this is a speculative opportunity and investors should acknowledge it as such. Then it is OK to bet on it in either direction. In the absence of fundamental information it is a binary guess. Neither side has the right to claim intellect supremacy at this stage and only time can tell who’s right.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.