Investors in the electric vehicle battery (EV) group QuantumScape (NYSE:QS) stock have not had a good 2021. So far in the year, QS stock is down more than 70%. Yet, when the company went public in November 2020 via a special purpose acquisition company (SPAC) reverse-merger, Wall Street had high hopes for future quarters.
QS stock skyrocketed from under $20 per share in November to $132.73 at the end of 2020. But as quickly as it rose, QS stock plunged. It currently hovers slightly below $25 per share. Despite surging over 10% over the past month, the record high of last December is in the rear view mirror.
Therefore, today’s article focuses on what might be in store for QS stock for the rest of 2021 and how investors could still make money from QuantumScape. Let’s take a look.
Play on Emerging Battery Technology
The outlook for this sector is significant. “The global EV batteries market… is expected to reach $38.32 billion in 2025 at a CAGR of 14%,” according to an August 2021 report from Research and Markets.
Meanwhile, analysts point out that declining battery production costs and increasing efficiency of batteries should speed up the move to cleaner energy sources in the transportation sector. This month’s National Geographic magazine cites data showing that “battery prices have decreased 97$ since 1991 and are expected to fall even further as production scales up.”
Academic research highlights, “All solid-state lithium batteries (ASSLBs)… which use solid state electrolytes (SSEs) instead of flammable, hazardous liquid electrolyte, could offer high energy and improved safety. As a next-generation energy storage technology, ASSLBs have shown great potential.”
So far, globally, no company has commercialized the solid-state battery technology. QuantumScape is working on developing energy-dense solid-state batteries with high driving range and fast charging times.
And that is why it gets significant Wall Street interest. My InvestorPlace colleague Dana Blankenhorn is out this morning with his take on the importance of batteries in the underlying investment thesis on Lucid Motors (NASDAQ:LCID) that is recommended reading.
In July, management announced it had successfully produced and started testing its first 10-layer battery cells. The Street regards this development as key in manufacturing a commercial product. If all goes according to plan, 2022 could see prototypes with commercialization starting by mid-decade.
Investors are hoping QuantumScape can develop a battery that can compete with the 4680 lithium-ion battery developed by Tesla (NASDAQ:TSLA).
Put another way, without a product, QS stock is a high-risk high-return play. After all, the company does not expect to generate revenue until 2024.
Adding QS Stock to Portfolios
Among six analysts tracked, QS stock has a “hold” rating. Despite the significant decline in price over the past nine months, shares have a 12-month median price target of $30.50, implying an increase of about 26% from current levels. The 12-month price range currently stands between $23 and $70.
Therefore, buy-and-hold investors could consider investing in QS stock around the current level. However, we’re in the middle of a busy quarterly reporting season. Although QuantumScape stock does not have any profit to report at this point, the stock will likely be affected by earnings released by other names in the EV and battery space. Therefore, if you go long QS stock, be ready for choppiness in price.
Alternatively, you could consider buying an exchange-traded fund (ETF) that has QS stock as a holding. Examples include the Global X CleanTech ETF (NASDAQ:CTEC), the Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV), or The De-SPAC ETF (NYSEARCA:DSPC).
Cash-Secured Put Options
Those readers who are experienced in options could also consider selling cash-secured put options. They would be appropriate if you are slightly bullish or neutral on QS stock at this time.
The increase in implied volatility (IV) levels during the earnings season makes this strategy a potentially viable one to consider.
Selling cash-secured put options generates income as the seller receives a premium. As I write now, QS stock is around $25.50. The trade will be to sell the Nov. 19 expiry $24 puts with a current option premium of $1.45. Therefore, the maximum return for the seller on the day of expiry would be $145, excluding trading commissions and costs.
If the put option is in the money (meaning the market price of QuantumScape stock is lower than the strike price of $24.00) any time before or at expiration on Nov. 19, this put option can be assigned. The seller would then be obligated to buy 100 shares of QS stock at the put option strike price of $24.00 (i.e., at a total of $2,400).
In that case, the trader ends up owning QS stock cheaper than the current level of around $25.50. The break-even point for this example is the strike price ($24.00) less the option premium received ($1.45), i.e., $22.55. This is the price at which the seller would start to incur a loss.
If the put seller gets assigned the option, the maximum risk is similar to that of stock ownership but partially offset by the premium (of $145) received.
The Bottom Line on QS Stock
Owning QS stock for the long-run is appropriate if you believe QuantumScape can improve upon the current battery technology. Therefore, it remains a speculative play. However, there could still be ways to generate returns from QS shares, either by buying the dips, or investing in ETFs, or alternatively selling cash-secured puts.
On the date of publication, Tezcan Gecgil 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.
Tezcan Gecgil, Ph.D., 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 three 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.
