QS - QS Stock Outlook: Why QuantumScape Isn't Worth the Gamble Right Now

2024-02-28 06:15:00 ET

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In the middle of a market rally, QuantumScape (NYSE: QS ) stock took a tumble of late, with QS stock now down significantly from its January peak. Considering the move other Nasdaq stocks have made, this is a stock that’s clearly lacking momentum. The stock has faced downward pressure as investors evaluate the company’s early-stage technology.

Given how nascent this space is and how uncertain QuantumScape’s commercialization timeline is, much of this uncertainty being accounted for in the company’s stock price makes sense. Here’s why I think such uncertainty is likely to continue, making QS stock one of the riskier gambles in the battery space right now.

There’s Been Some Noteworthy QS News

QuantumScape saw an 11% dip recently due mainly to the company’s Q4 results . However, another key factor investors are watching closely is the fact the company is undergoing a CEO transition. Co-founder Jagdeep Singh will become chairman, while Siva Sivaram will lead the company’s commercialization phase.

I do not know how this transition will go, and though the company likely could benefit from a new leader (and one that’s less theoretical and more practical), I’m not sure it will really move the dial all that much, especially over the next few quarters.

Additionally, some difficulties for QuantumScape have materialized this week. The company’s expansion phase remains even more uncertain, with less demand expected due to lower-than-expected projections from both Rivian and Lucid’ in their 2024 outlooks.

Even with advancements in battery design, the company’s lack of revenue leaves it on thin ice. However, a move towards more affordable EVs may hinder QuantumScape’s goals for mass production in about two years, given the expected high costs of its batteries.

No News is Bad News

A significant threshold was crossed in December 2022 when QuantumScape shipped its prototype batteries, giving breath back to the expectations for commercialization. Unfortunately, prices stalled when the market and EV sales grew despite stock volatility.

QuantumScape rarely provides operational updates; if they do, it’s usually as shareholder letters. The recent letter showcased increased packaging and a prototype cell that completed 1,000+ cycles.

The revenue figures in QuantumScape’s shareholder letter are nowhere to be found, and as of September 30, 2023, there was no income from primary activities. Financially, its net losses rose. Although management looks to a cash runway through 2026, the statement holds back information about commercialization expenses.

Don’t Gamble on QS Stock

Analysts continue to focus on QuantumScape’s potential capital-raising needs, as the costs of commercialization pick up. I would expect to see more equity issued, given the company’s historical preference to issue shares to fund its development.

Over time, as the company’s cash pile dwindles, I expect investors will become more concerned. Thus, in the absence of any meaningful updates, this stock remains a sell in my view.

On the date of publication, Chris MacDonald 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 .

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