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Quantumscape: Short-Term Bets on a Long-Term Proposition

Quantumscape (NYSE:QS) is a developmental company, working to create a solid-state lithium-ion battery that recharges fast and lasts a long time. Naturally, the excitement around QS stock is closely related to the electric vehicle (EV) trend.

The entrance to QuantumScape Headquarters QS stock
Source: Tada Images / Shutterstock.com

Current batteries are prone to dendrites, hair-like particles that grow inside them and inhibit the flow of electricity. Quantumscape CEO Jagdeep Singh has been working on the problem for years, however. And he may have a solution — a thin ceramic sheet that filters lithium as it passes through.

But it could be a while before QS batteries are ready. The company only showed test data in December, which demonstrated its units can get 80% of their charge back in just 15 minutes.

That’s great, but there’s still no production yet. So, why is this stock selling for just shy of $50 per share on Feb. 4, at a market capitalization of $17.1 billion?

QS Stock and the Long Term

QS stock is selling for that because this company can solve a problem that’s been plaguing liquid batteries for a long time — and it can make a fortune off it.

However, it’s not entirely clear that Quantumscape will be able deliver on the dream. It must find a way to produce a lot of separators. It must find ways to install them at scale. And it must also mass produce solid-state lithium-ion batteries and bring them to market at a competitive price.

Of course, faster and stronger batteries are the game for EVs. They’re the key to improving range and cutting recharging times. Basically, they can make driving electric more like driving a gas-powered car.

Tesla (NASDAQ:TSLA) dominates the EV market because it dominates in batteries. It has a system for recharging them and changing them out, can mass produce them and promises to improve range with “tabless” ones (although those are three years off from full production).

But there are lots of other battery players, too. Saft, backed by the French oil company Total (NYSE:TOT), is one example. In fact, EnergyStartups counts as many as 70 companies working on new battery designs. Many are also working on materials other than lithium-ion. So, the competition is global.

Bill Gates was an early QS backer. But even his Breakthrough Energy Ventures is backing other companies as well.

The Speculation

For Quantumscape, the big problem is that it needs capital to get from the lab to production.

The battery maker raised $680 million in its special purpose acquisition company (SPAC) deal with Kensington Capital. Its public launch was on Nov. 27.

Since then, QS stock has traded as high as $132 and as low as $28. The most recent bottom, from which it’s now bouncing, was around $42.

That initial rise was fueled by an installation agreement with Volkswagen (OTCMKTS:VWAGY). But the later fall was influenced by an S-1 form at the end of 2020, which said that the company would sell more stock and dilute existing shareholders. This was followed by a Jan. 4 Seeking Alpha column that noted what I’ve just said — that the company’s road ahead is hard and full of competition.

And I haven’t even touched on what happened back in autumn, when a host of lawyers claimed Quantumscape misled investors. Because of all the circumstances, fellow InvestorPlace contributor Nicholas Chahine thinks the whole thing is more of a trade than a long-term buy.

The Bottom Line

If the stock has bottomed, though — like InvestorPlace’s David Moadel believes it has — then it’s time for you to place your bets. Quantumscape is a speculation that will pay off years from now, if it manages to pay off at all.

EVs could be a $1 trillion market by 2030, with batteries representing one-quarter of that. But new materials like graphene and sulfur could blow lithium-ion out of the water. Plus, Quantumscape may be unable to prove reliability or even scale up production. In the end, you’re betting on Singh, his engineering team and his deep-pocketed partners to come through.

So, if you place a bet on QS stock, treat it like venture capital. Be prepared to stay in for years.

On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.


Article printed from InvestorPlace Media, https://investorplace.com/2021/02/qs-stock-short-term-bets-on-a-long-term-proposition/.

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