There are a few reasons to believe QuantumScape (NYSE:QS) stock may be one to avoid right now. It hasn’t had a strong start to 2022. In fact, it’s down from $23 to below $18 since the month began. More importantly, it has halved since mid-November.
And the solid-state battery firm was a massive disappointment from a price appreciation perspective overall in 2021. It basically shed two-thirds of its value throughout 2021.
But it’s a long-term play. After it burst onto investors’ radar following a SPAC listing in third quarter 2020, it was red hot. The market seemed to act as if QuantumScape was destined to commercialize a solid-state EV battery immediately following its inception.
It didn’t but that doesn’t mean all is lost.
QS Stock is Long-Term Bet
The truth is that QuantumScape won’t likely reach commercial scale operations until fiscal year 2025. That’s not news. It is the same long-term bet it always was in solid-state EV battery production.
So why should investors care at this point? After all, the time horizon is long and QuantumScape has no guarantee of success in developing such a battery. Well, for one, QuantumScape did hit developmental milestones quite quickly.
Its 10-layer cell maintained at least 80% energy retention after 800 cycles following extensive testing. The firm was confident that its technological prowess exceeds that of other competitors. CEO Jagdeep Singh said, “We believe no other player has demonstrated equivalent performance with solid-state or lithium-metal battery technology.”
Yet, the market has soured on QS stock nevertheless. That’s understandable given the time horizon for any potential massive payoff. There’s a long time between now and 2024-2025 when commercialization is expected.
QuantumScape could fail. Other competitors could pull ahead of the firm and commercialize solid-state EV batteries first.
Skepticism Dominates Thinking
QuantumScape hit its development goals this year. Based on that it should ostensibly trade higher. But the market is seemingly waiting for it to fail. Back in November the firm announced that it had achieved its 2021 goals ahead of schedule.
You can’t really find much fault in a firm that achieves a strategic plan ahead of pace. But the market is simply waiting for QuantumScape to fail. That is evidenced by the high short interest in QS stock which currently sits at 16.25%. That is attributable to the notion that competition is gaining.
True, QuantumScape does have competition in the solid-state space. Solid Power (NASDAQ:SLDP) went public in December. Like QuantumScape, it is a SPAC which will enter the game flush with capital for expansion and development. Its balance sheet shows more than $500 million in cash equivalents.
Further, Toyota (NYSE:TM) remains a serious competitor in the space. It shouldn’t be taken lightly. In fact, Toyota recently promised that it too will produce commercial solid-state batteries by 2025.
Stationary Apps Widen Market
The other news which could send QS stock up soon is that it is moving into the stationary power market. QuantumScape announced that it is partnering with Fluence Energy (NASDAQ:FLNC). The partnership is intended to introduce solid-state battery technology into stationary power applications.
The news doesn’t mean that QuantumScape has forsaken EV applications. Rather, it means the company now has a larger total addressable market opportunity. Thus, greater potential future revenue streams.
Again, QS stock remains a long-term play. The market realizes that it faces competition between now and commercialization.
It looks like a strong choice for investors keen on capitalizing on the niche. But another strategy could be to buy several competitors in the space and reduce holdings as time moves on.
But I like QS stock now because it has increased its potential with the recent partnership with Fluence Energy. Further, I really like QuantumScape because it met its strategic goals ahead of schedule.
There’s something to be said for companies that lay out a framework, put their noses to the grindstone, and deliver. That gives me longer-term confidence in the shares.
On the date of publication, Alex Sirois 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.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.