News of another collaboration deal with a top 10 automaker gave a boost to QuantumScape (NYSE:QS) stock last month. Between Sept. 20 and Sept. 24, shares spiked from $21 to $27 per share.
But since then? This electric vehicle battery play has given back most of these recent gains.
Yes, much of this was due to the market’s overall pullback since Sept 27. Yet even if stocks avoid a true correction, don’t take to mean this “green wave” play has a shot of bouncing back in a big way.
Instead, even with the headline-making partnership news, the story’s largely the same here. Still years away from turning its technology into a moneymaker, QS stock will likely tank again before it makes its way out of its current trading range. That is, back toward the prices it traded for months back, before the EV bubble began to deflate.
That doesn’t mean, however, that this is a stock to avoid, no matter the price. Once less hope and hype gets priced into it, and as the timeline before startup stage and commercialization stage narrows? It may reach a point that it’s a screaming buy. For now, though, sitting on the sidelines is still the best move.
QuantumScape Locks Down of Another Big Customer
If you’ve followed QS stock, you are aware of the company’s existing partnership with Volkswagen (OTCMKTS:VWAGY). So, who is this other major automaker that’s signing on to help develop/utilize the company’s solid-state battery (SSB) technology? The 8-K filing with the Securities and Exchange Commission doesn’t name the company. It simply states the other party in its agreement is a large original equipment manufacturer in the automotive space.
On Sept. 27, my InvestorPlace colleague Will Ashworth speculated in an article on QS stock that the unnamed big customer may be Stellantis (NYSE:STLA). Stellantis was formed earlier this year, when Fiat Chrysler and PSA Group merged to form the world’s fourth-largest automaker. But whether it’s Stellantis or another major automaker may be irrelevant.
What matters is that the company is still moving in the right direction when it comes to commercializing its technology. Once its SSBs are ready for prime time, it now has not one, but two major automakers interested in them. The problem? It isn’t happening next month, next quarter, or even next year.
Instead, it’s not going to be until at least three years from now that it goes from zero to 60 in terms of generating revenue. In the meantime, the stock, pulling back from its recent spike, still stands to drift to lower prices.
A Solid Entry Point Has Yet to Emerge
QS stock may look cheap today at nearly $25 compared to the triple-digit prices it changed hands for late last year. Yet still valued 100% on its future potential, and not on its current results, shares remain at high risk of moving lower in the near term.
Before, I’ve talked about this being mostly due to the risk of the overall stock market experiencing a full-on correction. Such an outcome is going to hurt speculative growth plays the most. But even if the market overcomes its latest challenges, or simply sees only a modest pullback from a variety of uncertainties, QuantumScape could still continue to trend lower.
Again, due to the long timeline between now, and when it starts generating revenue from its SSBs. Worse yet, if the company starts failing to hit technical milestones? Investors willing to hold it now may decide to make their exit. How low do I think this stock could go?
As commentators like Al Root from Barron’s have noted, it’s tough to assess a price for QuantumScape. Nevertheless, assuming that the company doesn’t face a “game over” moment (for instance, its SSB technology is a dud on arrival), investor impatience could result in further gradual moves lower. The silver lining? If it sees another double-digit decline, a solid entry point could emerge.
The Bottom Line on QS Stock
Ultimately, safer, more efficient SSBs could become the preferred battery type in EVs. However, that time remains years away. Still trading at levels that price in its possibilities as near-certainties? It’s too early to buy QuantumScape. As I’ve put it in my past articles on this stock, chances are you’ll be able to enter a long-term position at a better price.
Yes, its recent deal with another major automaker is a positive. But given this news likely won’t prevent QS stock from sliding further in price, “wait and see” remains your best move.
On the date of publication, Thomas Niel 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.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
