Despite multiple positive milestones attained in recent weeks by electric vehicle maker QuantumScape (NYSE:QS), I continue to believe that QuantumScape stock remains vastly overvalued.
Tough competition, uncertain technology, the long wait until its products can be launched, and a sky-high valuation are among the points that keep me on the sidelines when it comes to QuantumScape.
Moreover, I think that many investors and pundits are vastly overestimating the importance of Volkswagen’s (OTCMKTS:VLKAY) investment in the company.
Volkswagen recently agreed to invest an additional $100 million in QuantumScape, bringing the German automaker’s total investment in the battery maker to $200 million. The investment went through after QuantumScape managed to meet technical milestones to which it previously agreed.
But, as another InvestorPlace columnist, Mark Hake, pointed out in his April 6 column, as part of the deal, Volkswagen also received 15.22 million shares of QuantumScape for just $6.57 per share. In theory, Volkswagen could obtain over $700 million by selling the shares, as Hake noted.
But even if Volkswagen is restricted from selling the stock anytime soon or chooses not to do so, there’s another important point that many on the Street seem to be missing.
Specifically, $100 million sounds like a great deal of money to consumers. But it’s actually not that much money to Volkswagen, whose 2019 and 2020 revenue came in at 250 billion euros and 220 billion euros, respectively. Even considering the company’s reported $300 million total investment in QuantumScape, that’s little more than 10% of Volkswagen’s 2019 revenue.
Here’s an analogy: if a person who makes $100,000 per year spends $1,100 on a computer, would he or she hesitate, five years later, to buy a much better computer for $1,100 if the new computer would greatly improve his or her work productivity? Of course not. In that situation, the new computer will be worth much more to him or her than the $1,100.
Similarly, if Volkswagen finds a better battery in a year or two, the $300 million it has invested in QuantumScape likely would not stop it from ditching the battery maker.
But on the other hand, it’s certainly good that QuantumScape was able to meet the technical specifications and received the $100 million.,
A second, largely positive note is that the company sold 10.4 million shares for proceeds of $416 million, Seeking Alpha reported on March 25. Although the deal will dilute the owners of QS stock, it does put more money in QuantumScape’s hands that the company can use for R&D and other needs.
Tough Competition and Other Hurdles
In December, Toyota (NYSE:TM) unveiled a solid state battery that can be totally recharged in 10 minutes. QuantumScape has said that the solid state battery which it’s developing can be recharged 80% in 15 minutes.
The Japanese automaker reportedly plans to introduce the battery in the early 2020s. That’s very bad news for QuantumScape, whose batteries are expected to be in vehicles in 2025, according to CNBC. And if Toyota can accomplish that feat without QuantumScape, why can’t other large automakers and battery makers also do so within the next four years?
Another piece of bad news for the owners of QS stock is that the Israeli battery maker which I’ve discussed in previous columns, StoreDot, looks poised to become a very serious player in the EV battery race. In 2020, the startup “successfully charged a two-wheeled electric vehicle in just five minutes,” International Business Times reported last month.
Also indicating that StoreDot should be taken pretty seriously, BP (NYSE:BP) invested $20 million in the start-up. StoreDot raised nearly $130 million, including contributions from Daimler, Samsung and electronics manufacturer TDK (OTCMKTS:TTDKY).
Further, in March StoreDot appointed BP’s former vice president of business development, David Gilmour, as its executive chairman and added BP’s head of scientific innovation, Jon Salkeld, to its board. Gilmour, who was also Global Head of BP Ventures, the company’s venture capital unit, had been on StoreDot’s board since 2018.
Meanwhile, as I pointed out in a previous column, an expert has questioned the viability of QuantumScape’s technology.
The Bottom Line on QS Stock
QuantumScape has a market capitalization of $18 billion. That’s a huge valuation for a company with no product revenue whose future is uncertain. Therefore, I continue to advise investors to sell the shares.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.