A funny thing happened to QuantumScape (NASDAQ:QS) even as the company faced down a flurry of investor anger. And posted a quarterly loss. And questions raged on about the viability of its solid-state batteries in development. QS stock went up.
Way up. As in nearly 60% up in less than three weeks. On Feb. 22, Quantumscape rose 4% after a mini-dip the previous week. What in the name of Alessandro Volta is going on here?
That depends upon whom you ask: QuantumScape’s CEO or a world-renowned expert on solid-state battery technology. Whom, if anyone, should you believe? Or both?
Let me explain how the battery brouhaha is shaking out.
The Soaring of QS Stock Explained
One reason behind the quiet comeback of QS stock lies in a timely PR push. It’s being applied in this case by none other than the QuantumScape Founder, CEO and Chairman Jagdeep Singh.
Singh has told Bloomberg and Forbes, among other publications, that it’s getting closer to the commercial production of multilayer-cell batteries for electric vehicles.
It shocked me that Bloomberg, which has hit ExxonMobil Corp. (NYSE:XOM) hard in its coverage, didn’t bother to fact check its gushing “tech breakthrough” headline.
Forbes contributor Brooke Crothers was also fairly breathless in his coverage, which included an interview with Singh. But in the words of one of my journalism mentors, a crime reporting maestro named Jerry Cummings, “Lou (or in this case Brooke), you did not get the whole story.”
Issues Behind the Bragging, Solidly Stated
Single-source tech stories where the tech company’s CEO is the source are always a bit precarious and sometimes precious. But in this case, a much more powerful counterpoint exists that makes me not just a QS stock bear, but a grumpy grizzly bear.
Last month, Brian Morin wrote a piece on Seeking Alpha that shocked QuantumScape believers. While acknowledging that the company’s science was “very good,” he also concluded thus: “Their batteries are small and unproven – not yet as big as an iWatch battery, and never tested outside a lab.”
He went on to question whether the technology they claim to have is even possible.
“[Making such a battery capable of running an EV] is hard – very, very hard,” Morin said. “So hard, in fact, that nobody has done it. I’ve read many dozens of research papers where scientists have tried … but then apologize for the lack of a complete working battery, and lay out the significant challenges ahead.”
Not exactly a ringing endorsement from the Energizer Bunny.
Why the QuantumScape Critics Matter
Morin is not some amateur stock picker. He is, in fact, the CEO of Soteria Battery Innovation Group. He also serves as director and vice president of the non-profit National Alliance for Advanced Technology Batteries. Oh, and he holds a doctorate in materials physics from the Ohio State University.
As a result of Morin’s article, QuantumScape faces at least three separate lawsuits. Attorneys accuse senior executives of making misleading statements to investors regarding its solid-state battery technology. They also allege that QuantumScape is “unlikely to be able to scale its technology to the multi-layer cell necessary to power electric vehicles.”
Are those suits with their lawsuits going away? Sorry, Mr. Singh, but I don’t think so. In fact, the firms gunning on behalf of those who hold QS stock have been urgently reminding investors to join their respective classes before their early March deadlines.
Why I’d Escape QuantumScape
The recent kerfuffle with GameStop (NYSE:GME) illustrates how investors can operate in conditions that defy the laws of logic and gravity.
Ditto with Inovio Pharmaceuticals (NASDAQ:INO), which saw its stock soar in 2020 as it pumped out feel-good press about its vaccine candidate for the novel coronavirus. Never mind that the company hasn’t produced a single vaccine in its four-decade history, or that its media machine has gone quiet (especially if you made a killing off INO stock).
As for the fate of QS stock, Singh may well be telling the truth. Morin is a more objective voice, though. And he definitely has the science and credentials behind him.
What’s more, investing in a company that could see its fortunes wiped out in court is a bit like seeking out Volkswagen AG (OTC:VWAGY) as a clean energy partner. You know, $33.3 billion, record-shattering, Dieselgate scandal Volkswagen.
Which, by the way, is the very company QuantumScape has partnered with. Where QS stock is concerned, this equals betting on Keith Richards as a paragon of clean, drug-free living.
Yeah, watch QS stock double as the ink dries here. I don’t care; I’d relish being wrong. What I can’t tolerate is steering you wrong. Take your investment dollars somewhere else. As investment issues go, at least at this point, this one’s a dead battery.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.
