It isn’t all bad at QuantumScape (NYSE:QS) stock, but I don’t believe an investment in QuantumScape currently makes sense.
The timeline until commercialization (which looks like it’ll be 2025) should give investors pause.
Further, the scathing short-seller report by Scorpion Capital should at least raise some questions about QuantumScape’s leadership and some seemingly legitimate employee concerns.
Then there’s the reality of QuantumScape’s income and cash flow statements. All of these things point toward a stock that is, at present, still highly speculative.
However, I mentioned that it isn’t all bad. Let’s start by digging into some price chart truths and then technical milestones at the company. These are focal points to consider because QS stock still has a long road ahead, and it isn’t all doom and gloom.
A Closer Look at QS Stock
QuantumScape is clearly a long-term investment for those who are going to pull the trigger and dump some capital into it. I’m not suggesting that you make that investment, only that that’s the only time-frame that makes any sense. That was clear when details about the time to commercialization were released.
QS stock is way down since peaking at $130 back in December. It’s way down since it traded at $64 two months ago. But QS stock is still more valuable than it was at its $9.90 IPO.
There’s something to be said for that fact. It indicates that the market still has plenty of belief in QS stock. Again, why shouldn’t the market remain cautiously optimistic about this company’s ability to produce a solid-state lithium metal battery?
Nothing has definitively been disproven yet. The jury will be out a long time, and there’s no reason to write this company off yet by any stretch of the imagination.
In fact, there are reasons for hope to be renewed: technical ones.
Meeting Real Milestones
QuantumScape delivered cells to Volkswagen (OTCMKTS:VWAGY) for testing at their labs before the end of Q1. The cells met the required technical specifications including separator thickness and area, as well as temperature, power, and cycle degradation specs.
Volkswagen rewarded QuantumScape with an additional $100 million investment for meeting the milestone.
QuantumScape also made progress on multilayer cells and scaling up technology. According to a company statement it remains on track to meet its 8-10-layer cell milestone by year-end and expects to provide commercially relevant prototypes by 2022.
QuantumScape may also have figured out how to run solid-state batteries without external pressure. Essentially this means that its batteries may be able to cycle at normal atmospheric pressures experienced in everyday situations. The necessity of pressurizing a battery adds cost as well.
Less flashy, incremental wins like this are where QuantumScape will live or die. These technical milestones grab less media attention than claims that the company solved 40-year-old problems. That’s probably a good thing.
QuantumScape will fail or succeed based on the merits of its scientific prowess and note the claims of its leaders. I think the company is settling into a better place. That means that along with technical aspects, we need to give financial realities more thorough credence.
It’s worth noting that QuantumScape remains pre-revenue. This often-trumpeted fact is one to keep in mind. Further, losses continue to mount at the company. Q1 ‘21 net losses hit $75 million, up from $15 million Q1 ‘20. That’s the reality of attempting to achieve what QuantumScape wants.
But the company is cash-rich, with $764 million listed on its cash flow statement. That number was a mere $41 million a year earlier. The company isn’t in dire straits, but losses and a lack of revenue are realities.
For all of these reasons I believe now is the time to hold QS stock.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.