Despite the wild ride its stock has taken lately, the story for QuantumScape (NYSE:QS) stock remains the same.
QuantumScape is a bet on changing how batteries are designed. QuantumScape has been working on this since 2010. The idea is simple in concept, replacing liquid electrolytes with solids, ceramic separators with a polymer, carbon anodes with lithium.
Getting it all to work, and producing it at scale, is obviously harder. But QuantumScape has a partner in Volkswagen (OTCMKTS:VWAGY), which has been turning into an electric car giant since its Dieselgate scandal.
Until last November you could speculate on this through a SPAC called Kensington Capital, traded as KCAC. On Nov. 27, its merger with QuantumScape became official. The shares now trade as QS.
I wrote this in February. The story hasn’t changed.
The Scorpion’s Sting
The wild ride of QS stock began with the merger. Speculators sent the shares as high as $131 each within a month. Then they plunged and bounced around $60 for a quarter. Recently they’ve been falling again, since a report by short seller Scorpion Capital doubled the shares held short from 4% to 9.3%.
The Scorpion report did not mince words. The headline called QuantumScape “a pump and dump SPAC scam.” It said QuantumScape’s battery design would not work outside a lab. It accused CEO Jagdeep Singh of pumping the stock ahead of a lock-up expiration that would let the insiders cash out.
There is a lot of risk, and potentially a lot of reward, in what QuantumScape is doing. Lithium-ion batteries are prone to producing dendrites, rigid tree-like structures that speed the battery’s failure. Dendrite “whiskers” penetrate the separator between anode and cathode, like weeds poking through a concrete roadway. A solid battery could hold a lot more charge if the dendrite problem can be solved.
If QuantumScape can halt dendrite formation, and if QuantumScape can produce the resulting batteries at scale, it could make Volkswagen a serious challenger to Tesla (NASDAQ:TSLA) in the electric car race. Batteries are the industry’s true gating factor.
The Scorpion report came out after QuantumScape raised cash with a secondary offering, diluting existing shareholders. As our Mark Hake noted, Volkswagen’s $100 million in stock came at an implied price of $6.57 per share, a paper profit of over $1 billion.
This deal alone should have sent the remaining shares plummeting. But it’s the short-seller who is getting the credit.
Is the News Good?
QuantumScape did hit its technical milestones in March, triggering the $100 million from Volkswagen. The company also appointed a Panasonic (OTCMKTS:PCRFY) executive to its board, Celina Mikolajczak previously worked at Uber Technologies (NASDAQ:UBER) and Tesla. She will look at QuantumScape’s tools and process decisions. These don’t sound like the moves of a pump-and-dump.
For our David Moadel, the good news outweighs the bad. Chris Lau also believes in the long-term prospects of QuantumScape stock. QuantumScape says its cells can get back 80% of their charge in just 15 minutes. Bill Gates, who was an early investor, still believes in QuantumScape.
The Bottom Line for QS Stock
The Scorpion sting took out 18% of QuantumScape’s value in just a week. It’s now at $36 with a market cap of $12.7 billion.
As with all developmental companies, there are no numbers on which to base any of this, no sales and certainly no profits. We’re still speculating, just as we were before QuantumScape was a glimmer in Kensington Capital’s eye.
QuantumScape burned through $1.1 billion last year. Writers who talk about “investing” in QS stock are using the wrong word.
The correct word was, and remains, speculation.
At the time of publication, Dana Blankenhorn directly owned no shares, directly or indirectly, in any company 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, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his free Substack newsletter https://danafblankenhorn.substack.com/.