QuantumScape (NYSE:QS), a high-risk startup, aims to revolutionize the EV industry with its ambitious “forever battery” development, has become a polarizing stock to discuss.
Some investors think that this is a company holding the “holy grail” of battery technology. However, many are impatient with the ongoing capital losses and uncertain timeline.
Is it wise for dip-buyers to invest in QuantumScape at this time? Unfortunately, the risk-to-reward ratio for QS stock in 2023 is far from ideal. QuantumScape’s financial situation is concerning, and the development of its multi-layered battery cell product is progressing at a slow pace.
The Thing About Quantumscape
QuantumScape’s business model has recently generated excitement among investors. Solid-state batteries, which are considered a revolutionary advancement in battery technology, have sparked enthusiasm.
These batteries fulfill the long-awaited desires of electric vehicle enthusiasts. They offer faster charging, longer battery life, extended range capabilities and improved efficiency compared to current technologies.
QuantumScape is an ambitious startup with the potential for great success or failure. Their goal of developing a revolutionary “forever battery” for electric vehicles has captured attention.
QuantumScape’s shares have experienced a significant decline, losing half of their value since mid-February. With the stock nearing the critical $5 level, there is a possibility of it becoming a penny stock.
This indicates that the hype surrounding QuantumScape has faded, and investors are faced with the challenging reality of the situation.
QuantumScape’s press releases page lacks frequent operational updates. It has been five months since QuantumScape delivered its 24-layer prototype to automotive manufacturers. Although time may seem to pass quickly, QuantumScape’s progress has been disappointingly sluggish.
Why Am I Hesitant
In 2021, Scorpion Capital’s sent-out allegations raised concerns about QuantumScape’s ability to deliver a solid-state battery within the projected timeline.
Their detailed report delves into the scientific aspects of QuantumScape’s breakthrough. It questions the feasibility of the company’s solid-state battery capabilities.
According to Scorpion, the presented claims regarding the batteries are either impossible or misleading. The report challenges several assertions made in QuantumScape’s battery demonstrations and public communications.
Short-sellers doubt the possibility of QuantumScape’s solid-state battery technology becoming commercially available at scale within the next few years. They question the credibility of the CEO’s claims, drawing comparisons to Elizabeth Holmes of Theranos.
Scorpion Capital’s report alleges false and misleading statements, raising concerns about deceptive practices.
QuantumScape’s shareholder letter in late April 2023 also failed to halt the decline of QS stock. The company acknowledged the need for improvement in reliability as they move from prototype to commercial product.
However, QuantumScape has not provided investors with a clear timeline for this transition.
Moreover, QuantumScape’s prolonged development of multi-layer battery cell technology comes at a high cost.
Operating expenses grew to $109.978 million in Q1 2023 from $90.657 million in the same period last year. Net earnings loss expanded from $90.353 million to $104.631 million, while total cash declined from $300.535 million to $258.733 million.
What Now?
QuantumScape has not given a clear timeline, which is concerning as the company continues to invest in research and development. While QuantumScape shows promise, waiting indefinitely is not advisable.
Investing in pre-revenue companies like QuantumScape comes with risks of overvaluation and volatility. Shareholders face uncertainty regarding the timeline for the company’s potential and the size of its market.
Ultimately, buying QuantumScape stock requires trusting one’s instincts. But personally, I remain bearish on the outlook for QS stock over the medium-term. Until some sort of concrete and realistic commercialization timeline is put forward, stay clear.
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.