If you like to invest in bold companies, you might want to take a look at next-gen, solid-state electric-vehicle battery maker QuantumScape (NYSE:QS). I’ve expressed a positive outlook on QS stock and still believe that there’s a bullish case to be made.
That being said, I also want to present both sides of the argument. There’s no denying that everything hasn’t been perfect for QS stock lately.
QuantumScape isn’t filing for Chapter 11 or anything like that. However, if you scroll through the news articles surrounding QuantumScape, you’ll probably find a lot of headlines saying things like, “Deadline Alert” and “Investor Notice.”
It’s usually a major red flag when you see those headlines. And speaking of red flags, as we’ll now explore, the price action in QS stock is also signaling caution to prospective investors.
A Closer Look at QS Stock
As I’ve reported previously, QuantumScape was tradable through a shell company known as Kensington Capital, which had the stock ticker symbol KCAC.
Things sure looks more promising for the shareholders back when it was KCAC stock. By the time the business combination between Kensington Capital and QuantumScape was finalized on Nov. 27, the stock had already run up from the $10 level to $37.
With QuantumScape now trading through QS stock, the shares kept on pushing higher for a few more weeks. On Dec. 22, the stock price topped out at an amazing 52-week high of $132.73.
Then came the decline, and it was brutal. QS stock tumbled all the way down to $43. If you took a position back in the KCAC days, you might still be ahead on your investment.
For folks who chased QS stock near the peak, however, it’s undoubtedly painful to witness the sharp decline. Moreover, as we’ll soon discuss, the situation might not get any better in the near future.
Let’s Start with the Good News
If we ignore the company’s ongoing legal problems for a moment, we can construct a “good news, bad news” outlook for QuantumScape and its stakeholders.
Also encouraging is the fact that QuantumScape has secured a funding commitment from Microsoft (NASDAQ:MSFT) co-founder Bill Gates. In all, according to QuantumScape, the total amount of committed capital invested in the company is an impressive $802 million.
On top of that, QuantumScape expects that with over 90 million vehicles produced annually, there’s a lucrative market representing upwards of $450 billion of potential battery sales each year.
The company claims that there’s currently only 2% market penetration for the types of batteries QuantumScape produces. I’m specifically referring to the company’s solid-state lithium batteries, which charge very quickly. It needs just 15 minutes to get an 80 charge%.
The Sharks Are Circling
If all of the foregoing positive catalysts are enough to convince you to hold QS stock, I respect that decision.
This filing sparked investors’ concern that the company would sell a large number of QS stock shares, leading to share dilution.
When you see a sudden share-price drop of that magnitude, don’t be surprised if the lawyers come calling. Thus, I recently discovered a number of ongoing legal actions targeting QuantumScape. Feel free to click on the following links to get the details:
- Thornton Law Firm
- Bernstein Liebhard
- Klein Law Firm
- Schall Law Firm
- Jakubowitz Law
- Rosen Law Firm
- Levi & Korsinsky
- Kessler Topaz Meltzer & Check
And that’s not even the complete list. With the legal sharks circling around QuantumScape, it’s going to take a whole lot of capital to fight off all of these legal action.
The Bottom Line
It’s not all bad news at QuantumScape. The addressable market is large and QuantumScape’s batteries can charge electric vehicles quickly.
Yet, prospective investors might not want to deal with the company’s legal issues. If that’s a deal breaker for you, then this might not be the ideal time to take a position in QS stock.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.