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Technical Milestone Achievement Should Outweigh QuantumScape Dilution Worries

If you’re going to park your investment capital in a solid-state electric-vehicle battery maker, I would consider QuantumScape (NYSE:QS) to be a great choice. Sure, there are risks involved with QS stock, but that comes with the territory if you’re planning to invest in next-generation technologies.

A sign for QuantumScape (QS).
Source: Michael Vi /

Some folks like this stock, while others aren’t so fond of it. One item of concern is that the share price has declined quite a lot since it peaked late last year.

The reduced price point might be viewed as a problem, or as a prime buying opportunity. It mostly depends on your investing style and your outlook on the company.

Today, I’ll attempt to paint a balance picture of QuantumScape and form a conclusion as to whether the shares are right-priced now, or just a falling rock.

A Closer Look at QS Stock

For much of last year, QuantumScape was tradable through a shell company known as Kensington Capital, which had the stock ticker symbol KCAC.

The business combination between Kensington Capital and QuantumScape was finalized on Nov. 27, 2020. However, by that time, the stock price had already rallied from the $10 level to $37.

Even after KCAC stock changed over to QS stock, the shares continued to move relentlessly higher. On Dec. 22, 2020, the stock price peaked at a 52-week high of $132.73.

Perhaps we could call that period the hype phase, as the share price tumbled soon afterward and didn’t recover during 2021’s first quarter.

On the afternoon of April 13, 2021, the stock was trading near $42.50. Now that the hype phase seems to have passed, contrarian and value-focused investors might choose to start a long position.

A Concern to Note

I promised to deliver a fair and balance picture, so let’s start with what might or might not be considered problematic for QuantumScape.

As InvestorPlace contributor Alex Sirois reported earlier this month, on March 22, QuantumScape announced a proposed offering of 13 million shares of common stock.

Sirois further observed that following this announcement, a selloff in QS stock immediately ensued.

Was this the “right” reaction for the market to make? The answer is, yes and no.

I can understand that the current shareholders might not like the dilutive effect of the share issuance. On the other hand, QuantumScape appears to have plans to put the proceeds to good use.

Specifically, the company plans “to build a larger QS-0 pre-pilot line than recently announced; to cover its full share of equity contributions to its joint venture with Volkswagen … for the previously disclosed 20-gigawatt-hour expansion of QS-1 joint manufacturing facility” and for working capital and general purposes.

A Major Milestone Is Achieved

Let’s rewind a little bit. A while ago, QuantumScape established an agreement with automaker Volkswagen (OTMKTS:VWAGY) to install its batteries in some of Volkswagen’s cars.

This deal is significant to QuantumScape’s prospects of future revenue generation. Therefore, it’s not a bad thing that the company plans to commit capital toward the advancement of QuantumScape’s joint venture with Volkswagen.

Moreover, there’s another development that pertains to QuantumScape’s partnership with Volkswagen.

On March 31, QuantumScape revealed that it had “successfully met the technical milestone that was a condition to close for the investment of an additional $100 million by Volkswagen Group of America Investments … into QuantumScape.”

What was this technical milestone? Evidently, Volkswagen successfully tested “the latest generation of QuantumScape’s solid-state lithium-metal cells” in their Germany-based labs.

The arrangement between Volkswagen and QuantumScape provided for a total $200 million investment. Achieving this milestone effectively unlocked the final $100 million of that $200 million total.

The Bottom Line

Concerned about share dilution with QS stock? I completely understand. Still, this won’t be a deal breaker for everyone.

Thankfully, there’s also good news to report. The share price is down significantly from the peak. This offers a prime buying opportunity for contrarian investors.

Furthermore, the connection between QuantumScape and Volkswagen appears to be rock-solid. Only time will tell how many more milestones QuantumScape might achieve in 2021.

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

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

Article printed from InvestorPlace Media,

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