Investors in QuantumScape (NYSE:QS) stock have had a disappointing 2021. Year-to-date (YTD), QS stock is down over 27%. The record high of $132.73 hit on Dec. 22, 2020, is a distant memory, as the stock now hovers around $36.50. And, it’s been a bumpy ride down.
Today’s article looks at what might be in store for QS stock for the rest of the year. Most retail investors may find the risk profile of QS shares to be high for their portfolios. It is still too early to say if it could generate multi-bagger returns over time. Therefore, if you currently have paper profits in QS stock, you might want to realize some of those gains. But if you are not yet a shareholder, you might want to put your capital into another robust company or an exchange-traded fund (ETF).
QS Stock Was Initially Up With The Rising Tide
To be sure, 2020 was the year when shares of electric vehicle (EV) and energy alternatives businesses became the hottest ticket on Wall Street. QuantumScape, a special purpose acquisition company (SPAC) battery stock, also managed to ride the wave to success.
EVs currently use lithium-ion batteries, which have limitations. Therefore, Wall Street is ready to listen to companies’ stories that will improve the current technology.
QuantumScape initially started in 2010 out of Stanford University, California. Management aims to mass-produce solid-state lithium-metal batteries that could offer a longer driving range and shorter charging times. Analysts regard them as safer since they do not generate the heat that lithium-ion batteries do. Charging rate and performance of batteries are two main issues faced by EV makers and drivers.
Many rushed to buy QS stock following the reverse-merger with Kensington Capital Acquisition in late November 2020. Those early investors were rewarded handsomely. But since the end of the year, the tone of the story has changed. It is still not definite when the technology will be successful commercially. The company wants to begin commercial production in 2024 — with Volkswagen (OTCMKTS:VWAGY) as one of its leading investors.
In recent days QS stock rebounded from $31 to $39 as QuantumScape announced it met Volkswagen’s technical requirements, leading to a release of the investment of an additional $100 million by Volkswagen. CNBC recently reported, “more than 70% of the Volkswagen brand’s European sales will be EVs by 2030, up from a previous target of 35%.” Therefore, batteries are a crucial part of the equation for Volkswagen.
QuantumScape Faces Short-Seller Headwinds
In recent weeks, shares of high-growth and speculative companies have been ebbing higher and lower, depending on headline news. Meanwhile, investors are debating how much risk they want in their long-term portfolios.
In the case of QuantumScape, the company has also come under attack from short-sellers. InvestorPlace.com contributor Ian Bezek recently discussed the report by Scorpion Capital in detail. He notes, “The Scorpion report spends more than 60 pages going through six key technical concerns about QuantumScape’s battery technology. There’s detailed discussion of battery life, function in cold weather, recharging time, and more.”
I agree with his conclusion that “If you have any financial interest in QS stock, you owe it to yourself to read through these arguments and come to your own conclusions on their validity.”
According to the most recent quarterly metrics released in February, QS stock’s basic and diluted net loss per share was $2.41. A year ago, it had been 6 cents. When the next quarterly report gets announced in a few weeks, investors would like to have a potential road map to mass production and revenues.
Without clear milestones from QuantumScape, any positive momentum in shares will be short-lived.
The Bottom Line on QS Stock
A low-carbon future is an investment theme that will stay with us for many years. For the EV space, a better battery technology will be a game-changer. Shares of businesses like QuantumScape, which does not yet have a commercially viable battery, will always get headlines.
However, unless the Street hears definite development achievements regarding its proposed batteries, QS stock remains an exciting but speculative bet in this space. Those with paper profits might want to take some money off the table, as most potential share gains are likely to be factored into the price.
I expect shares to trade between the $30-$40 range in the near future. Therefore, at present, I’d remain on the sidelines. For QS stock to make a sustained leg up, the company need to produce solid results in producing solid-state lithium-metal batteries soon.
Finally those investors looking for EV and battery shares could consider investing in an ETF. Names to consider include the Amplify Lithium & Battery Technology ETF (NYSEARCA:BATT) [with 0.59% expense ratio, or $59 per $10,000 ], the Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV) [0.68%/$68], the Invesco WilderHill Clean Energy ETF (NYSEARCA:PBW) [0.70%/$70] or the VanEck Vectors Low Carbon Energy ETF (NYSEARCA:SMOG) [0.62%/$62].
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.