Quantumscape Stock Needs to Mature a Little More Before It Is a Buy

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Up 11% in the past month and outperforming the broader market, Quantumscape (NYSE:QS) stock looks to have turned a corner.

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

Since bottoming right around $14 a share at the end of February, QS stock has risen more than 10% to now trade at $17 per share.

The company has outpaced the technology-focused Nasdaq index. The Nasdaq has gained 2% over the past month but remains down 13% on the year.

However, despite its bounce higher in recent weeks, the solid-state EV battery maker is still down 70% from a year ago. That is nearly 75% below its 52-week high of $64.80 a share. This raises the question of whether Quantumscape has truly bottomed and is on its way to a meaningful recovery. Maybe its recent leg up is just a temporary blip.

The Ultimate Battery

Quantumscape is developing a solid-state battery that holds the promise of dramatically increasing the driving range of electric vehicles while reducing costs. Until now, solid state technology has largely been a theoretical concept.

Electric vehicles today predominantly run on lithium-ion batteries that perform well but have reached their limitations in terms of functionality.

Many within the electric vehicle industry feel that lithium-ion batteries cannot be improved upon and that it will take solid-state batteries to move the industry to the next level. Lithium-ion batteries replaced the (now outdated) nickel-cadmium batteries that were found in the earliest EVs.

While promising, solid-state batteries have not yet been successfully commercialized by any company. Quantumscape is viewed as a leader in the space. As recently as Feb. 16 the company reiterated that it expects to start commercial production of its solid-state batteries within two years (2024).

The game-changing potential of Quantumscape’s technology has attracted some high-profile, well-heeled investors, including Microsoft (NASDAQ:MSFT) co-founder Bill Gates and German automotive giant Volkswagen (ETR:VOW3). Volkswagen has invested $200 million in the company.

Yet despite the hype, QuantumScape has yet to finalize the design of the solid-state battery cell it plans to commercialize and bring to market.

The company has said that its main goal for this year is to settle on a cell design prototype that it will move into commercial production. Quantumscape has said it will deliver sample battery cells in 2023.

While the timelines are encouraging, Quantumscape has admitted to some technology and production setbacks in recent months and whether the company can meet its production schedule remains a question mark.

Financials & SPAC Deal

Quantumscape is operating in the red right now as it works to commercialize its solid-state batteries. For the fourth quarter of 2021, the company reported a wider-than-expected loss of $70.8 million, or 16 cents a share.

While the latest loss was greater than the 10 cents a share that Wall Street analysts had forecast, it was dramatically improved from a net loss of $1.3 billion, or $4.42 a share, a year earlier.

Plus, QuantumScape said it has well over $1.4 billion of cash on hand to fund its operations moving forward. While the company remains unprofitable at this stage in its evolution, the fact that its losses have narrowed is encouraging.

Quantumscape went public via a reverse merger with a special purpose acquisition company (SPAC) in November 2020. At the time, the company needed to raise capital to fund its operations.

Some analysts have questioned the timing of Quantumscape going public, saying the company issued shares too soon. Since its market debut, QS stock has come down sharply along with many securities that went public via SPAC deals.

After peaking at just under $115 a share shortly after going public, Quantumscape’s stock has now fallen 85% to its current level of $17. The share price has also been hurt by a short-seller report issued last spring.

Wait for QS Stock to Mature

Solid-state batteries are often referred to as the holy grail for the electric vehicle industry. They’ve been hailed as a cheaper alternative that can provide superior driving range and shorter charging times. Perfecting the technology and bringing solid-state batteries to market has, so far, proved elusive, though.

It’s instructive to note that solid-state batteries have been discussed, debated and under development since the 1830s. Can Quantumscape crack the code and be the company that finally commercializes the technology? Time will tell.

Right now, given the company’s red ink and declining share price, investors should wait on Quantumscape. The company needs to time to grow, mature and prove that it is on track with its solid-state batteries. Right now, QS stock is not a buy.

Disclosure: On the date of publication, Joel Baglole held a long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines


Article printed from InvestorPlace Media, https://investorplace.com/2022/03/qs-stock-needs-to-mature-a-little-more-before-it-is-a-buy/.

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