What QuantumScape and the Internet Pioneers Have in Common

In many ways, investing in QuantumScape (NYSE:QS) stock now would be similar to buying shares of an early internet technology company around 1998. Web browsers and internet  retailers, among many other types of companies, were  entering a completely new, highly competitive world then. Since this world was so unknown and featured extremely tough competition,, it was extraordinarily difficult for investors to distinguish winners from losers.

A QuantumScape sign at the company's headquarters.
Source: Michael Vi/Shutterstock.com

Similarly, QuantumScape is a pioneer in the new world of utilizing solid-state batteries to power automobiles, and competition in the overall EV battery space is quite intense. So investors who are considering taking a position in QS stock have to make a very tough call: Is QuantumScape likely to become the next Amazon.com (NASDAQ:AMZN) or are the chances greater that it will be similar to Pets.com and Netscape?

I’m not entirely sure about the answer to that question. However, even though QuantumScape does have some points in its favor, I think it’s more likely that it will be in the Pets.com category than in Amazon’s class.

In the next several paragraphs, I’ll outline the reasons for my belief.

Multiple Experts Are Skeptical

QuantumScape is facing an issue that the internet pioneers in the late 1990s did not really have to contend with. Specifically, there are multiple reports of experts and industry insiders questioning the viability of the battery maker’s technology, and even the company itself has indicated that its venture may not work. Although many questioned the viability of the internet pioneers’ business models and their ability to be profitable in the long-run, few if any real experts doubted whether the internet and websites in general would survive  and thrive.

The latest indication of widespread skepticism towards QuantumScape’s technology  surfaced last month, when short-seller Scorpion Capital released an extremely negative report on QS stock.

Scorpion reported that it had spoken with “9 former {QuantumScape} R&D employees, 4 leading solid-state battery experts, and 2 employees in Volkswagen’s EV battery effort,” TheStreet reported last month. After these discussions, Scorpion concluded that  QuantumScape ” is no different than other recently exposed SPAC promotions and EV frauds.” What’s more, Scorpion wrote that employees of Volkswagen (OTC:VWAGY), with whom the battery maker is partnering, are dubious about QuantumScape’s “claims,” TheStreet stated.

QuantumScape has denied Scorpion’s assertions, even going so far as to threaten Scorpion with a lawsuit. Still, in my experience, although short sellers’ reports are sometimes not 100% accurate, they are usually not completely off-base. As a result, I think it’s much more likely than not that battery experts and Volkswagen employees do, at least, have serious doubts about the viability of QuantumScape’s technology.

Additionally, Seeking Alpha columnist Brian Morin, who’s also CEO of a battery company, has expressed serious doubts about the viability of QuantumScape’s batteries, while QuantumScape’s CEO, sounding less that 100% sure of its batteries, said, “If we can get this [battery] to market, we actually believe we can get a very big share of the market. If we do that, investors will be well taken care of.”

Threats on the Horizon

In multiple prior columns, I’ve discussed Israeli start-up StoreDot, which has developed a battery that can fully charge a two-wheeled electric vehicle in just five minutes. Signs are continuing to mount that StoreDot is well-positioned to become a serious player in the EV battery sector.

For example, the company recently successfully had 1,000 “samples” of its EV battery made in China last month. It says that it plans to provide samples to “potential EV and industry partners.”  Moreover, also in April, the company announced that it had received a “Best Practices award” from research firm Frost & Sullivan.

And as I’ve pointed out in previous columns, a few prominent companies, including “Daimler, BP, {and} Samsung,” have invested in StoreDot. Also worth noting is that I haven’t come across evidence of experts expressing a great deal of skepticism about StoreDot’s approach.   (As I’ve previously written, QuantumScape has received investments fromVolkswagen (OTCMKTS:VWAGY), Microsoft (NASDAQ:MSFT) founder Bill Gates; and the Qatar Investment Authority.”)

Meanwhile, QuantumScape says that its solid-state batteries, which are not due to be released to the market for a few years, could potentially enable EVs to be 80% charged in 15 minutes. But Tesla already has Superchargers that can add 200 miles of range in 15 minutes. I think there’s a great chance that, before QuantumScape’s battery is launched, lithium-ion batteries will enable EVs to be 80% or even fully charged in 15 minutes.

The Bottom Line on QS Stock

Like internet stocks in the late 1990s, QuantumScape’s outlook is quite uncertain at this point. And its shares may be even riskier than those of the early internet companies because, unlike them, there are serious questions about the viability of QuantumScape’s basic technology.

In light of these points, as well as the current skepticism towards growth and technology stocks and the $11 billion market capitalization of QS stock,  I strongly recommend selling 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 14 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.

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