QuantumScape Is a Long Play For Patient Investors

It’s not easy to be long on QuantumScape (NYSE:QS) stock these days.

A sign for QuantumScape (QS).
Source: Michael Vi / Shutterstock.com

After getting a slight boost after reporting second-quarter earnings, the stock has given up most of its gains. Unlike many stocks at this time, QuantumScape can’t point to light volume. QS stock is trading at right about its average volume. 

As with many stocks that have gone public in the last year, short interest is playing a factor. As of July 15, short interest was over 20% and the stock had a short ratio of 3. However, with QS stock not drawing much attention from retail investors, this is a heavy lift for retail investors. 

QuantumScape is competing in what is becoming a crowded field. And it’s getting crowded because the prize is tantalizing. At stake is relevancy, if not supremacy, in the race to develop a battery solution for electric vehicles (EVs) that can be produced at scale. 

But if that sounds like a familiar sentiment then you may want to be patient with QuantumScape.  

A Different Movie With a Similar Plot 

The current race to build a better battery in the electric vehicle sector reminds me a bit of the Covid-19 vaccine race. And I think it’s important for investors to remember that one key fact applies to both. That being, there is likely to be more than one winner.  

And like the vaccine race, there are likely to be different approaches. The current lithium battery technology has a first-mover advantage. But range limitations and slow charging times, combined with a current lack of charging infrastructure is why a solid-state battery is in play.  

However, as I noted above, that is making the field crowded.  

For example, Nio (NYSE:NIO) offers its battery-as-a-service (BaaS) program that sets it apart. This program addresses a key concern about battery life and it allows Nio to sell its vehicle at a lower price. However, Nio also announced their own version of a solid-state battery that the company claims will be able to go 620 miles on a single charge.  

Tesla (NASDAQ:TSLA) has long marched to the beat of Elon Musk’s particular drum. And that drum is now taking it down the path of the 4680, a tabless electrode, cobalt-free lithium battery. One benefit of this battery is that it should allow for supercharging capability.  

What’s Good For the Goose May Be Good For QS Stock 

I recently read an article in which Luke Lango detailed the importance of access to capital as it relates to Lucid Motors (NASDAQ:LCID). Lango wrote:  

…When it comes to a capex-intensive business like EV manufacturing, access to capital is king — you need access to capital to build huge manufacturing plants all across the world, operate those plants, fund operations while running losses, and, on top of all that, continue to attract top-notch talent with big-time salaries. A lack of access to capital will be the death of many startup EV makers out there today… 

I agree and so it’s time to give QuantumScape some love. The Qatar Investment Authority (QIA) recently took a 4.69% stake in the company. The stake is worth approximately $446 million. 

It’s too early to say what the capital will be used for. However, when I last wrote about QS stock one concern was that 2024 or 2025 was a long time to wait for revenue. My thought, which was prompted by an article I read by Mark Hake, was that QuantumScape needed to find a way to pull revenue forward 

This investment which theoretically can get larger is a nice balm for investors who have been holding on while the stock has lost more than 50% of its value in the last year.  

And it’s important to remember that this comes with the ongoing funding commitment that QuantumScape has with Volkswagen (OTCMKTS:VWAGY).  

It’s More Important to Be Right Than First 

If you’re looking for a technical signal for QS stock, I can’t really help you. If it helps the relative strength indicator (RSI) suggests the stock is looking oversold. 

But the payoff for QuantumScape is years down the road. And it could be a good one. But there’s a lot of space between then and now. The best thing that the company can do now is to keep convincing investors that it is on track to bring a product to market. It’s not about being first. It’s about getting it right.  

Analysts give QS stock a price target of over $44. In my opinion that makes it a buy at its current level, but only with money that you can afford to lose.  

On the date of publication, Chris Markoch 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.  

Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.  

Article printed from InvestorPlace Media, https://investorplace.com/2021/08/qs-stock-long-play-for-patient-speculators/.

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