QuantumScape (NYSE:QS) is developing solid-state lithium-metal batteries with the ultimate goals of commercialization for electric vehicles, among other applications. QS stock could be a significant player in the EV industry, but there is one huge problem — we don’t know if it will succeed in becoming the norm for EV batteries.

And if your business model is centered around a promising technology that still hasn’t proved itself, that spells trouble.

So what is my take on QS stock now?

Solid-State Batteries Vs Li-Ion Batteries

Today the majority of EV cars are equipped with lithium-ion batteries and all the problems they bring. Who wants to spend many hours charging a car instead of refueling their combustion engine within minutes — especially daily? Charging an EV takes planning, their range is still mostly problematic, and their cost is usually higher than traditional cars. Plus, there is the extra weight of those batteries.

And there is also the risk of an explosion in a severe car crash.

Finally, we all know from our smartphones that there is a natural decline in the performance of the battery over time.

What if QuantumScape could solve all these problems with its solid-state battery technology? Is that a compelling reason to buy QS stock now and reap the profits in the future?

The answer is that QuantumScape has been placing all bets on the future of its technology, believing that production, hopefully on a mass scale, is feasible soon.

An interesting article about solid-state batteries and their potential to transform the EV industry mentions that there are several advantages worth mentioning:

• They are smaller in size and more energy-dense than lithium-ion batteries.
• They are safer.
• They can be charged more times or being more effective.

However, what it may seem like a brilliant technology is not without its flaws. The key disadvantages of solid-state batteries include:

• It is difficult to manufacture solid-state batteries at a large scale.
• “The perfect material for a solid electrolyte with the ideal ionic conductivity has yet to be found.” And then there’s the cost of solid-state batteries, compared to lithium-ion batteries.

In this article, it was mentioned that this new technology in batteries will not be available until at least the year 2025.

QS Stock: Mass-scale Now Is Its Achilles Heel

Unfortunately for QuantumScape, the difficulty of producing mass-scale solid-state batteries is its weakest point. Still, this technology is being tested. And until it gets embraced and some major EV makers start to adopt it, QuantumScape has no revenue at all.

And from a valuation perspective, it translates to a very low fair value for the stock because everything starts with revenue– it’s the base for free cash flow generation. With zero revenue, free cash flow is negative, meaning the company is both unprofitable and is burning cash. That’s hard to be excited about.

In an article on Yahoo! Finance, QuantumScape CEO Jagdeep Singh mentioned that he is optimistic commercialization is expected to begin in 2024-2025.

He said, “So really, I would say the biggest task going forward is around scale-up. And scale-up is– there’s two ways to scale it up. There’s scaling up the number of layers in a cell. That we’ve shown very encouraging progress on. And there’s also a scaling up in terms of the capacity and throughput of the manufacturing facilities. And there, you might recall we announced that we’re doing this pre-pilot line facility that should be able to produce hundreds of thousands of cells in the 2023 frame, which gives us enough cells to put into real test cars. And that’s when I think you’ll see actual cars with these batteries in them.”

He also admitted that scalability is the biggest problem not just for the production itself but for the manufacturing facilities too.

Scorpion Capital Vs. QuantumScape

When I read the report by Scorpion Capital titled “QUANTUMSCAPE (NYSE: QS) A Pump and Dump SPAC Scam By Silicon Valley Celebrities, That Makes Theranos Look Like Amateurs” posted in April 2021, I noticed that the allegations against QuantumScape are both many and severe.

On page 6 of that report, the table of contents listed:

• ”Multi-layer cells: a fraudulent narrative to cover up a failure
• “Our research indicates that Quantumscape can’t even reliably make TEST cells that work
• “Red flags around scaling and manufacturability render Quantumscape’s cells a pipe dream”

Also on Page 5 is a list of phony claims.

• “Phony claim A: Solid-state material resists dendrites
• “Phony claim B: Battery performance in low temperatures
• “Phony claim C: Fast charging to 80% in under 15 minutes”

And of course, there was a mention of a “magic material” that drives this innovation in batteries for electric vehicles and its cost which is questionable whether it is cheaper compared to the lithium-ion batteries used today in most EVs.

Now, these allegations are severe. This is a red flag. The company only replied on Twitter (NYSE:TWTR) but is this tweet enough and an official reply from QuantumScape? I do not think so.

A Very Optimistic Business Outlook

In an investor presentation dated Oct. 2020, the management appears too optimistic for future revenue. From zero today, there is a forecast on page 28 that the company will have $14 million revenue in 2024 and $6.4 billion in 2028. This growth is too unrealistic.

By coincidence 2028 is the year that QuantumScape expects to have for the first time a positive free cash flow.

With no revenue yet, an unknown technology and overly optimistic projections, it is too hard to consider now QS stock as a great investment opportunity. It has too many risks and a valuation that does not make it attractive.

On the date of publication, Stavros Georgiadis, CFA  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.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.