A Downgrade of Expectations Could Be Good for QuantumScape

Though very few argue against the forecast that electric vehicles are the future, clean-energy-based transportation has a huge problem: the underlying innovations are expensive. Fortunately, pioneering research by companies such as QuantumScape (NYSE:QS) aim to change this narrative for the better. Through a possible breakthrough in solid-state battery technologies, QS stock could deliver untold riches to early-bird investors.

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

Indeed, that must have been the thought process for most as shares skyrocketed between late October to Christmas Eve of last year. At one point, QS stock closed at several cents shy of $115, representing nearly a 12x gain from its August 2020 debut.

While shares have obviously come down substantially from those peaks, it’s important to realize why so many folks believed in QuantumScape.

Essentially, lithium-ion battery packs for EVs in their current state have an obvious drawback compared to combustion-based vehicles: energy density or lack thereof. For instance, a gallon of gasoline can power a typical modern car approximately 30 miles – or even more – down a stretch of highway. The equivalent volume of electrons will hardly do squat.

According to the American Physical Society:

Batteries are expensive, resulting in electric cars typically being much more expensive than similar-sized cars powered by gasoline. There is a sensible cost limit when the cost of an electric car and electricity consumed over the life of the car considerably exceeds the cost of a car with an internal combustion engine including gasoline over the life of the car.

While the aforementioned economic challenge has stymied EV manufacturers, it’s also where the opportunity for QS stock lies. By utilizing solid electrodes and electrolytes over the liquid or polymer-gel electrolytes in traditional lithium-ion batteries, SSBs can pack more power in a smaller area.

Theoretically, this should deliver greater performance capacities at a lower cost. But this miraculous combo may be more fantasy than reality.

Removing the ‘Jesus’ Label Is a Better Look for QS Stock

As InvestorPlace contributor Chris Tyler explained, “QuantumScape’s next-generation multilayer, solid state technology holds the promise of being the holy grail of batteries. And due to its mission of radically improving cost, driving range, charging capabilities and while serving the environment in a much greener way than fossil fuels ever could, QS’ technology has even been called the Jesus battery.”

One of the main challenges for QS stock, though, is that investors aren’t going to wait around indefinitely for a fantastical narrative to materialize. They don’t want to lose money, and holding onto a rangebound security imposes opportunity costs.

Further, Doug Campbell, CEO of private SSB company Solid Power told Autoweek that the “battery community has developed a bad reputation for overpromising and under-delivering.” Campbell believes that it’s best for investors to recognize this reality to reduce the expectation for “overnight miracles” from battery companies.

We could start by knocking out the Jesus battery label.

Campbell bluntly stated that the “storage battery is, in my opinion, a catchpenny, a sensation, a mechanism for swindling the public by stock companies.” It’s difficult not to appreciate his argument. The truth is that SSBs have been around the block. It’s not that they’re not feasible but more so that they can’t deliver the trinity of high performance, low cost and reduced space (waste) that so many SSB companies have touted.

Put another way, it might be time to set some more realistic goals. Last time around, I made the case that QS stock could be more appealing to investors at a $20 price tag or lower. A valuation at that price implies a more realistic profile, something that could not be said when prices reached triple digits.

SSBs are Doable, But So Are Traditional Improvements

Taking the pressure off may be more helpful for QS stock than you might initially believe. For instance, there’s a phenomenon where companies which are kicked off the Dow Jones tend to perform better after their removal. It’s possible that once the speculation has been killed off from the SSB space, it could rise higher.

But it’s also worth noting that SSBs could represent false hope. Experts who take this route aren’t exactly saying that SSBs can’t work. Rather, the natural improvement of technological innovations could make standard lithium-ion batteries much cheaper and more effective, thereby potentially making SSBs superfluous or irrelevant. So, there’s risk in jumping aboard QS stock irrespective of its pricing.

But I will say this much. With a lower price point after a series of disappointments, QuantumScape can now rely on a lower bar. Whether that can boost QS stock remains to be seen although it’s certainly a better bet than it was a few months ago.

On the date of publication, Josh Enomoto 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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.


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