QuantumScape (NYSE:QS), an EV battery tech company, saw a surge in stock in November and early December. Despite a 25% year-to-date gain, this solid-state battery maker faces challenges. While prototype batteries exceed design targets, concerns persist. Adequate funds are secured for the next years, but profitability at scale remains unproven. QS stock is currently 70% below its market debut three years ago and 95% below its all-time high.
That said, caution is warranted due to financial concerns and a low price target from a notable analyst firm. For prudent investors, starting the new year with established businesses is crucial, and QuantumScape doesn’t meet the criteria.
Recent QS News
QS stock surged on news from Volkswagen’s PowerCo subsidiary. Volkswagen invested $100 million in QuantumScape in 2018 to leverage its solid-state battery potential. PowerCo’s recent A-sample test for QuantumScape’s 24-layer SSB exceeded expectations, completing over 1,000 charging cycles while retaining 95% capacity, equivalent to a range of 310,685 miles for an electric car.
QuantumScape now shifts focus to scaling SSB manufacturing after CEO Jagdeep Singh highlighted its superior performance in recent tests—a significant update for QS stockholders, as the last press release detailed third-quarter earnings on Oct. 25.
While the A0 prototype cell achieved notable milestones, neither PowerCo nor QuantumScape outlined a timeline for SSB production or commercialization. Developing groundbreaking technology takes time, indicating shareholders might need to wait for additional updates.
Little to No Updates from QuantumScape
QuantumScape investors sought regular updates on multi-layer EV battery cell development. However, 2023 saw minimal exciting announcements on QuantumScape’s press releases page. The last release on Oct. 25 covered third-quarter business and financial results, which revealed less-than-ideal financials.
QuantumScape, in a Form 10-Q filing, disclosed no revenue from principal business activities as of September 30, 2023. Notably absent from the third-quarter shareholder letter is the emphasis on the importance of reading Form 10-Q filings for comprehensive disclosure and a hint at trust concerns with QuantumScape.
QuantumScape mentioned raising $300M in a public follow-on offering. While it seems positive, updates on how the capital was spent were lacking. The capital wasn’t free, as share offerings raise dilution concerns and trust issues about potential future share printing for more funding.
Lastly, an analyst firm, William Blair, warns about QuantumScape. They estimate full commercialization as a “2027 and beyond story.” With infrequent updates, holding QS stock through “2027 and beyond” may prove challenging for investors.
Capital Raise is a Need
QuantumScape, still in pre-production, faced perpetual losses, with a year-to-date deficit of $331 million. With $1.1 billion in funds, it spent $182.5 million in nine months, leaving about four years before needing additional funding. The company sold $288 million in new stock in 2023 but holds no long-term debt.
The share offering was made likely to raise capital. This move raised dilution concerns, and analysts anticipate another share sale, expressing significant worries about QuantumScape’s weakened financial position.
HSBC analysts, Brooks and Zaack, foresee a potential increase in cash burn for QuantumScape as it scales, expressing concerns about future dilution risk and estimating no meaningful revenue until 2027. They revised the rating with a pessimistic $4.70 price target.
Sell QS Now
While QS stock holds potential, caution is advised, as promising companies can falter. QuantumScape’s A0 battery cell prototype outperforms expectations, boasting 1,000 cycles with over 95% energy retention, surpassing its commercial target.
Despite high prices, EV sales growth slows, with an average cost of over $52,000, limiting accessibility for the average buyer. That said, adding QuantumScape stock to your portfolio introduces unnecessary uncertainty and risk. With no revenue and profitability, coupled with the uncertainty of achieving full product commercialization in the coming years, investing in QS stock lacks confidence and isn’t recommended for 2024.
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.