Hopeful investors gave up in the weeks that followed QuantumScape’s (NYSE:QS) quarterly results. QS stock tried to bounce back to above the $30 range last month but failed.
Investors cannot get over the higher capital expenses ahead. Though liquidity fueled the stock after its post-SPAC (special purpose acquisition company) status, reality weighs on its prospects.
Selling Pressure Mounts on QS Stock
QuantumScape forecast higher spending on operations. It forecasted expenses between $260 million and $320 million for the full year 2021. Its development activities and higher capacity QS-0 line needs more support. Though QS touted its over $1.3 billion in liquidity, this is at the shareholder’s expense. The company has no revenue for the next few years. Therefore, markets will eventually lose interest in waiting for the company to deliver next-generation battery technology.
On its website, the company greets visitors with why to invest. It cites a once-in-a-century shift to electrified vehicles. This suggests that investors have only one chance — now — to profit from a shift in solid-state battery technology.
QS claims its uniqueness by stating that it has the only lithium-metal solid-state battery in automotive OEM validation. In reality, competitors like Ford Motor (NYSE:F) and General Motors (NYSE:GM) are supporting competing battery technology firms, too.
In the medium term, QS shares could continue falling to the high teens. Mounting losses will more than offset the $100 million in milestone revenue that Volkswagen (OTCMKTS:VLKAF) paid during the quarter.
Shareholder Letter
In its Q4 fiscal 2020 letter to shareholders, the 11-year-old company did not discuss its outlook until page 8. It will spend up to $290 million in combined operating and capital expenses to support its multilayer cell development. It will also build out QS-0.
QS-0 is “intended to have a continuous flow, high automation line capable of building over 100,000 engineering cell samples per year.” This manufacturing process promises to achieve high-volume sample production. The bad news is that QuantumScape did not mention revenue even once in the letter. Shareholders may only hope that costs do not rise more than forecasted. Furthermore, its advanced battery technology must deliver as promised.
Volkwagen has the most to lose if QS faces any delays. In March, the automotive firm provided $100 million in funding after QS met a technical milestone. And on May 14, QS and Volkswagen signed a joint venture agreement. It will select the location of its joint-venture solid-state battery pilot-line facility by the end of 2021. The plant will start producing 1-gigawatt hour (GWh) batteries. Then, it will expand the production facility by another 20 GWh at that location.
Chief Executive Officer Jagdeep Singh said that the company has a goal of bringing solid-state lithium-metal batteries to market as soon as possible. The CEO did not specify when that will happen and how much it will cost to get there. Shareholders are effectively speculating on QS’s addressable market. Valued at $11.5 billion even after falling by 80.5% from highs, investors are taking a leap of faith with this stock.
Fair Value
Three analysts who offer a one-year price target on QS shares think the stock is worth $42 on average (per Tipranks). In the chart below, traders will notice the moving average convergence divergence slope is rising while the stock price falls. This suggests that the stock could rally to almost $40, albeit briefly.
QS Stock Price is falling as its MACD rises
The bearish selling volume spikes on Jan. 2 and in April are notable events. Investors who lost money on the stock probably sold their positions by now. Speculators stepped in to buy the stock on lighter volume. Yes, QuantumScape could post positive battery development news again. That may bring back speculative buyers.
With a bearish short float of 19.25%, the company has much to prove. Chances are dimming that the stock will recover. After the hype in December 2020 that sent the stock to a $132.73 high, buyers are absent on rallies. So, sell the stock if its starts to rally on short-lived momentum.
On the date of publication, Chris Lau 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.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.