- The opportunity and risks are great in next-gen battery play QuantumScape (QS).
- A commercial pay-off remains two-plus years out for QS.
- Forward-looking QS stock bulls can hedge their exposure more effectively with an options strategy.
It’s beyond yesterday’s news, but it could matter more to QuantumScape’s (NYSE:QS) fortunes than current headlines struggling with broader macro concerns of stalling economies and rampant inflation on the back of the Russian conflict and Covid-19.
The ace up QuantumScape’s sleeve is legendary racing and luxury auto manufacturer Porsche (OTCMKTS:POAHY). Just over two weeks ago, Germany’s Manager Magazin reported the country’s prestigious car maker was considering QS’ radical solid-state battery technology for its forthcoming electric vehicle models.
The news sent QS stock thrusting higher by 17% in just two sessions and helped carry shares to gains of as much as 27% over the next week. But were bullish QuantumScape investors overreacting? Moreover, is there a chance that bears remain in the driver’s seat?
Today, let’s take a look at both positive and negative developments happening off and on the price chart of Quantumscape, then offer a risk-adjusted determination on QS stock aligned with those findings.
Bulls Have Reasons to Be Charged Up in QS Stock
Source: Charts by TradingView
Investors that are bullish on QS stock have more than just Porsche to be excited about. It’s common knowledge former Microsoft (NASDAQ:MSFT) CEO Bill Gates and Volkswagen (OTCMKTS:VWAGY), the world’s largest auto maker, are sizable investors in QuantumScape. Don’t bet against the house, right?
To be clear, the road to commercialization is still two to three years out. But QuantumScape has been reaching its stated technology milestones in getting its next-gen, “forever battery” to market. And without question the efficiencies tied to a viable QS product will provide a huge boon to EVs.
Of course too, through-the-roof gasoline prices are certainly good for QuantumScape’s stated game-changing technology. Not that it matters too much as underlying growth for EVs was already huge. In the U.S. alone, the market is forecast to grow at a compounded rate of 27% into 2026.
Also a positive, given the market is a forward-looking price mechanism, a purchase of QS today could mean a windfall before the first battery hits the market. InvestorPlace’s Luke Lango sees QuantumScape as a ten-bagger or greater.
Technically, following a strong rally out of a three-month, 70% correction that it completed in February, QS stock has pulled back into a testing position of lateral price support and its 50% retracement level. With stochastics oversold, on the verge of a bullish crossover and a confirmed doji bottom in place, there are reasons to support QS stock as a buy right now.
Bears See a Long Road Ahead for QuantumScape
Source: Charts by TradingView
Investors that are bullish on QS stock certainly got amped up over the Porsche news. But QuantumScape’s bear population of 19% might point out the outfit is owned by Volkswagen (OTCMKTS:VWAGY).
Sure, the added production might eventually be there, but the relationship somewhat dilutes the significance of a Porsche partnership with QuantumScape. And for all the initial cheer, QS shares are right back where they started prior to the report.
That brings us to today. Right now, despite meeting its battery progress goals thus far, there is still a large amount of execution risk. Remember, QuantumScape is promising a “Holy Grail” technology for EVs.
And worse? The stakes being what they are, the inability to locate the Holy Grail in an even less-timely manner, or for that matter fail completely, could result in a huge payoff for QS bears.
On the weekly price chart, compared to the daily’s bullish features, QS stock shapes up as more of a bearish flag. Stationed beneath resistance and stochastics crossing bearishly near overbought levels, bears look ready to improve upon this year’s 20% decline and begin their own forward-looking mission of price discovery.
How to Trade QS Stock Today
Ultimately, there are reasons to be bullish and bearish on QS stock. At the end of the day though, the concept-stage battery play is 100% a speculative wager on the future.
If there’s a spot in the portfolio for a longer-term commitment, regardless of whether your outlook is upbeat or dour on QuantumScape, I’d simply advise limiting the trade risk on the position with a Long-term Equity Anticipation Securities (LEAPS) bull or bear vertical.
With 2024’s commercial production timeline in mind, the 2024 January contract should be well-positioned to leverage and protect on future developments in QuantumScape.
For bullish QS stock investors, one combination that looks attractive is the 2024 Jan $25/$50 call vertical, as it has the capacity to reasonably outperform a long stock holding by a wide margin while vastly reducing downside risk.
On the date of publication, Chris Tyler 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.