The bullish case for QuantumScape (NYSE:QS) is simple enough to understand. The idea of a better mousetrap has fascinated investors for decades. QuantumScape is attempting to deliver the industry’s first solid-state lithium metal battery for use in electric vehicles. And if the company’s quest is successful, investors who bought QS stock even at its current price may look like geniuses.
You hear the “but” coming…and it is. However, let me first say that QS stock seems more reasonable now that it’s down over 50% from its late December peak.
But (you knew it was coming), QuantumScape won’t have a product to market until 2024 at the earliest, and solid-state batteries have been notoriously tricky to manufacture in large quantities. QuantumScape is ten years old and employs a lot of really smart people. But it’s taken ten years to get to this point.
QuantumScape has the potential to completely transform the industry. But those buying the stock at its current level could lose some money.
QuantumScape May Really Have a Game Changer
If you’re like me and your scientific knowledge is far from extensive, I’ll point you to QuantumScape’s web site. The company has a simple, easy-to-understand explanation of why its technology could be a game changer.
And solid-state batteries can eliminate many of the drawbacks of lithium-ion batteries. Namely, solid-state batteries will have a higher energy density which means they will be smaller and lighter than lithium batteries, they can be charged rapidly, and they will be safer.
And QuantumScape appears to be one step closer to launching solid-state batteries. In conjunction with its earnings report on Feb. 16, the company announced that it had developed a flexible ceramic material that can serve as a solid-state separator (for details on that, please visit the company’s website).
With so many electric vehicles hitting the market, the company that solves the problems with the batteries that are currently being used will win big.
Failure Actually Is an Option
QuantumScape is the focus of a class-action lawsuit that is being brought by investors who lost at least $500,000 based on what they describe as “false and/or misleading statements.”
The lawsuit claims that QuantumScape and Kensington Capital, the SPAC that brought QuantumScape public, “significantly overstated” the benefits of QuantumScape’s technology. What may be concerning for the current owners of QS stock is the plaintiffs’ allegation that the company “will unlikely have the ability to scale its technology to power electric vehicles.”
It appears that much of the plaintiff’s case comes from a Jan. 4 Seeking Alpha article that eviscerated many of QuantumScape’s claims. The stock dropped significantly after the article was published.
I’m not sure if the suit has merit. The words “buyer beware” should always be followed when it applies to speculative stocks. That doesn’t mean, however, that the lawsuit should completely be ignored .
Yet, at least initially, that seems to be what investors. are doing. QS stock charged 4% higher on the Monday after the news of the lawsuit broke.
That being said, there may be reasons to avoid QuantumScape, but the class-action lawsuit isn’t one of them. I’m not saying that the lawsuit is unimportant; investors should want transparency. I’m just saying that the company will not have a product available for several years. and that QS stock is being hyped as if its batteries had already been launched.
Wait For a Dip to Buy QS Stock
The technical outlook of QS stock appears to be bearish. The stock recently crossed below its 50-day moving average and (as of this writing) was struggling to regain that ground. Twice in the last week, it has encountered resistance when trying to move above $70 per share. The latter price is the highest target of the three analysts who are following the stock.
From my vantage point, it seems worthwhile to wait for the shares to fall around 20%. The company may have a better mousetrap, but 2024 is far away.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.