- QS stock is a vexing investment.
- In theory, QuantumScape should do well under the circumstances due to EV relevance.
- Ultimately, QS is an aspirational idea which is mostly better left for speculators.
One of the most vexing investments in the market today, QuantumScape (NYSE:QS) is quite the enigma. Underlying the company is the tantalizing possibility of completely disrupting the current global order, one which fossil fuels dominate. Instead, by offering a viable pathway toward electric vehicle alternatives, the firm issuing QS stock could lay the groundwork for transparency and democracy.
Yes, it sounds like a lubricious marketing pitch but the reality is that per a publication published by the Belfer Center for Science and International Affairs at Harvard Kennedy School, oil is a leading cause of war in much the same way that alcohol is a leading cause of drunk driving. Frankly, it’s a precious resource that fuels the global economy so some cynical justification exists for the longstanding bloodshed.
However, through QuantumScape’s research and development of solid-state batteries, the company could profoundly accelerate the performance, safety and reliability of electric vehicle (EV) powerplants while delivering cost savings through reduced usage of critical commodities. Organically, then, countries pivoting toward EVs could do away with the oil wars, presenting a compelling narrative for QS stock.
There’s just one little problem: solid state batteries (SSBs), at least to the scale of EV integration, remain aspirational. So long as that’s the case, QS stock will always be dogged with questions.
QS Stock and the Geopolitical Angle
On a year-to-date basis through the close of March 17, QS stock is down nearly 29%. Over the trailing year, it’s down exactly 71%. Until the paradigm changes dramatically, hemorrhaging will be the key term to describe QuantumScape.
Yet the paradigm may be changing. Over the trailing week, QS stock is up over 3% while in the trailing month, it’s up nearly 6%. Undoubtedly, at least some of the positivity can be attributed to Russia’s invasion of Ukraine, which has caused many global leaders to rethink their exposure to fossil fuels, supplies of which countries of questionable profile often dominate.
Obviously, the easy answer to the foreign oil dependency problem is to pivot to EVs. But right now, EVs are expensive on an upfront basis relative to their combustion-powered counterparts among other issues. However, QuantumScape could potentially resolve this challenge through densely packed and efficient SSBs, thus boding well for QS stock.
Still, SSBs will still require critical commodities — it’s not like you can build these things out of prayers and lollipops. And that puts China into play, whether we like it or not. For instance, China dominates graphite production among other natural resources. This means we could be switching from one dependency to another.
Domestic Problems Also Stymie the EV Rollout
But let’s just assume that SSB development means that no EV manufacturer will ever have to depend on graphite, copper, nickel, lithium and other high-value commodities. Even with this unbelievable concession, QS stock will still have domestic challenges to overcome.
The biggest in my view is the economic hurdle. While the Census Bureau mentions that about two-thirds of all occupied housing units in the U.S. had a garage or carport in 2017, that still leaves a significant number of Americans that don’t have access to home charging platforms. These folks will then need to charge at public stations.
Granted, the development of EV charging stations has accelerated in recent years, this situation poses a chicken-and-egg problem. In order for automakers to fully commit to EVs, they must have reassurances that the markets to which they’re selling have adequate infrastructure. But on the other hand, investments in charging stations won’t happen in earnest until automakers commit to manufacturing more EVs.
Who’s going to blink first? I have no idea. But if you’re going to invest in QS stock, you better have an idea because it’s a circumstance that could significantly impact the future viability of the underlying business.
Should You Buy the Discount in QuantumScape?
Recently, the upswing in QS stock has many people reexamining its narrative. Could the crisis in Ukraine cynically benefit the SSB manufacturer? It’s possible, but you must also be cognizant of outside realities.
Primarily, while a pivot to electric mobility sounds appealing, it may not reduce dependency on nations with questionable relations to the U.S. and western allies. Again, a mass-scale EV rollout probably means dependency on China, which would put the U.S. right back to being dependent on another unfriendly world power.
Even without dependencies to critical resources, the infrastructure necessary to support EV integration will be a massive undertaking. Yes, the story is attractive but more due diligence will be necessary.
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.