QuantumScape Is Too Far From Profitable to Buy Anytime Soon

Down more than 75% off its highs, should you consider QuantumScape (NYSE:QS) stock a bottom-fishers buy? Not so fast. The EV (electric vehicle) bubble that briefly sent shares in this early-stage EV battery maker has long gone, and it’s likely not coming back anytime soon.

QS stock
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Why? Investors got ahead of themselves. Taking last year’s “blue wave” U.S. election results as a sign that America’s shift to electric cars and trucks would happen even sooner, they bid up stocks like this one to prices that were above and beyond their true long-term potential.

In reality, the election has done little to speed up the pivot to EVs. Yes, trends are still pointing in that direction. But, it’s not going to happen in a matter of years. Even with Biden’s infrastructure bill (which includes $174 billion in federal support for the EV industry), it likely won’t be until at least the 2030s that this transition fully plays out.

This points to a continued re-assessment of EV stock valuations, which isn’t a good sign for Quantumscape shares. More importantly, though, there are company-specific factors that aren’t good for prices in the near term. Namely, the fact its much-touted battery technology is not set to become commercially available until the latter half of this decade.

And, that’s assuming everything goes off without a hitch. Recent reports casting doubt on its battery technology may be exaggerated. But, it does highlight how easily this stock, basically a publicly traded startup, could crash and burn if its flagship product fails to get off the ground.

QS Stock and Its Work-in-Progress Catalyst

Going long Quantumscape is a bet on solid-state batteries, or SSBs, overtaking lithium-ion batteries as the predominant battery technology used in EVs.

SSBs offer many advantages. For starters, using solid-state offers a greater driving range for EVs. That is, the number of miles you drive without having to stop and recharge. SSBs also offer up quicker recharging times.

To top it all off, solid-state batteries are much less susceptible to catching fire. In short, there are many factors pointing to this being the superior battery type, once EVs become mainstream.

This points to big potential for Quantumscape. And, via its partnership with Volkswagen (OTCMKTS:VWAGY), an automaker moving into EVs at a breakneck pace, it’ll be able to fully capitalize on SSBs once they become ready for the road.

The problem, as our own Matt McCall wrote last month, is that it’s not going to be until at least 2026 that this really starts to happen.

Again, that’s also assuming subsequent developments go off without any disruptions/hiccups. Quantumscape may have recently hit a technical milestone. But, as a recent in-depth piece on the company suggests, it has many more hurdles to climb, both with its technology, as well as with the build-out of its manufacturing infrastructure. Worse yet, are claims made by a vocal short-seller of QS stock.

‘Short Report’ May Be Overblown but Highlights Uncertainty

Another development that’s made the rounds as of late with Quantumscape has been accusations made by a short-seller betting against the stock. As Barron’s reported last month, Scorpion Capital released a lengthy short report.

In the report, Scorpion not only questions whether it will scale up to levels seen in its projections. The vocal short-seller questions whether Quantumscape’s technology even works at all.

Is there substance to these claims? Or, is Scorpion just trying to employ “short and distort” tactics in order to profit on its position?

The report initially caused a downward move for QS stock. Shares fell from around $35.50 per share, down to around $31 per share.

Yet, in the weeks since, shares have made a brief rebound back above $35, before falling back to around $31 per share again. With the company fighting back on the claims, this report may be done adding downward pressure on the stock.

Yet, while Scorpion’s accusations may be overblown, they do help to underscore the highly risky nature of this company. With its current $12.1 billion market capitalization, shares still trade as if later-decade projections (such as $6.4 billion in annual revenue by 2028) as a certainty. Paying up now, for a wager that’s hard to call a “sure thing,” may not be a favorable risk/return proposition.

Bottom Line: Shares Can Easily Head Lower in the Meantime

With the stock finding some support, to some now may seem like the time to dive in. It may look like shares have hit a bottom. But, keep in mind it’s a long road ahead before Quantumscape comes even close to hitting initial success.

In the meantime, shares could continue to trend lower. Especially if further developments give validity to the recent short-seller claims. With this in mind, there’s no need to rush into a position in QS stock.

On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


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