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QuantumScape (NYSE:QS) has fallen behind at least two of its key competitors in the race to launch electric-vehicle batteries that are superior to today’s widely used lithium-ion batteries. As a result, investing in QS stock is extremely risky at this point, QS can easily declare bankruptcy in the not-too- distant future, and I recommend that investors stay far away from its shares.
With that said, here are the three biggest risks facing QS stock.
QuantumScape Won’t Ever Be Able to Get Its Technology to Work Perfectly
The battery maker was founded 13 years ago, but apparently, it has not been able to develop a flawless product. That, in turn, leads to the obvious question: Will QS ever be able to develop a battery that works as it’s supposed to?
And by the way, it’s not me or even third parties saying that QuantumScape’s batteries don’t work perfectly. Rather, QuantumScape admits that its products are not yet functioning as they should.
Discussing the results of tests of its prototype cells by “prospective automotive and consumer electronics customers,” QS, in its first-quarter shareholder letter, wrote, “Most cells performed very well.” The company added, “we have work to do to improve reliability as we transition from prototype to commercial product.”
In an April 27 column, Seeking Alpha writer Nelson Alves identified some technical deficiencies that QuantumScape still has to overcome. Two of them are raising the capacity of their batteries’ cathodes and “reducing the thickness of cell stack elements and minimizing inactive materials.”
While I’m far from a technical expert, these are major upgrades that QS may not be able to accomplish in months, years, or ever.
QuantumScape Will Be “Beaten to the Punch” by Its Competitors
As I pointed out in a previous column, two of QuantumScape’s competitors “appear to have moved well beyond the initial testing phase,” putting them far ahead of QS. Specifically, BMW (OTCMKTS:BMWYY) is looking to conduct its own R&D on Solid Power’s (NASDAQ:SLDP) batteries at its own facility. At the same time, Vietnamese EV maker VinFast “has committed to incorporating StoreDot’s “extreme fast charging (XFC) battery cells” into EVs that it will sell to consumers in 2025.
And Seeking Alpha columnist Manuel Paul Dipold points out that three huge companies — Toyota (NYSE:TM), Samsung, and Panasonic (OTCMKTS:PCRFY) –are all working on new, better types of batteries. These firms all have the resources to easily overtake QS in the race to release new, better EV batteries.
QuantumScape Will Run Out of Money Before It Can Launch Its EV Batteries
As of the end of last quarter, QS had $983 million of cash and $105 million of debt. That puts its net cash at $878 million. In the 12 months that ended on March 31, it burned $234 million. So theoretically, QS has nearly four years left before it has to raise additional funds.
But we should consider that if QS gets to that phase, mass manufacturing is way more expensive than R&D.
If the battery maker has to contribute some of its own money to the manufacturing process, it’s likely to run out of funds in three years, just when its batteries are ready to be sold.
So if its competitors wind up making batteries that are better than those of QuantumScape or EV makers have already committed to buying improved batteries from one of the company’s competitors by then, no one is likely to want to invest in QS or lend it money, and QS will have no way to generate significant amounts of revenue. Consequently, it will likely be out of money and “headed for the dustbin,” as the expression goes.
On the date of publication, Larry Ramer did not hold (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.