Stock Market

Investors in electric vehicle battery hopeful QuantumScape (NYSE:QS) stock are not having a good year so far in 2021. QS stock now is near $22, down close to 75% year-to-date (YTD). The record high of $132.73 hit in late December 2020 seems far away in the rearview window.

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Leading automakers across the world are stepping up their EV production levels. Political dedication to reduce carbon emissions and rising customer awareness also contribute to the popularity of EVs. Meanwhile falling costs and increasing efficiency of batteries will help accelerate the transformation to cleaner energy sources in how we drive.

With its focus on developing energy-dense solid-state batteries, QuantumScape is expected to play a vital role in this transition. According to industry experts, its technological advantage in solid-state battery technology is real and growing. The company claims that solid-state batteries can offer a greater driving range and quicker recharge times than the lithium-ion batteries currently in use. In addition, its batteries should, in theory, be produced at a lower cost.

Those investors whose portfolios can handle a high risk/high return name could consider buying QS stock around these levels. However, they might need to have a time horizon of two to three years.

How Q2 Results Came

QuantumScape was founded in 2010 by a team led by Jagdeep Singh. For many businesses like QS, it would take a decade for EV shares and alternative energy businesses to find themselves in the investor spotlight. QuantumScape went public in 2020 was following a reverse merger with a special purpose acquisition company, Kensington Capital Acquisition.

As a promising battery stock, the company seized the moment, and investors rushed to buy QS stock in November 2020. The company’s other high-profile investors include Volkswagen (OTCMKTS:VWAGY), Microsoft (NASDAQ:MSFT) founder Bill Gates, and China’s SAIC Motors.

According to the second-quarter report released in late July, net loss per diluted share doubled year-over-year to 12 cents. Non-GAAP operating loss soared to $38 million, compared to $12 million in the prior-year quarter. Yet, the company had a solid liquidity position of $1.5 billion at the end of the second quarter.

In other words, QuantumScape is a pre-revenue company without a definite time frame to commercialize its promised product. Therefore potential investors in QS stock are betting on the success of the technology in question. Without clear milestones and achievements from the group, any positive momentum in QS stock could be short-lived.

QS Stock Relies on Volkswagen

QuantumScape’s partnership with Volkswagen, in particular, could offer a key competitive advantage, as solid-state batteries are expected to power Volkswagen’s coming EV fleet in the foreseeable future. Volkswagen recently announced it expects to have 25 million EVs produced by 2030, implying solid battery demand for QuantumScape from Volkswagen alone.

The battery group is now testing 10-layer cells and moving forward according to its plans. EV batteries need several dozen of such layers. Its factory expects to deliver prototype samples to automotive original equipment manufacturers in the coming months, and start commercial production by 2024. QS forecasts to reach a production capacity enough to support around 60,000 EVs in a couple of years.

Meanwhile, QuantumScape has agreed with Volkswagen to select the location of their pilot-line gigafactory joint venture by the end of 2021. The partnership substantially lowers operational risk factors. After all, Volkswagen has crucial experience in mass production in the automobile industry.

However, it is too soon to tell whether other automakers will purchase batteries from QuantumScape as such a move would mean financing a competitor, albeit indirectly.

The Bottom Line on QS Stock

Technologically advanced battery development will be the game changer in the EV space. If QuantumScape shows meaningful results, its stock could rapidly double its $8 billion market cap.

Given its vast total addressable market, bullish investors could therefore regard QS stock as a high risk, high reward investment. As the shares have declined about 13% in the last month, they now offer an even better opportunity for buy-and-hold investors.

Yet those investors still face several years of waiting period for any potential revenues. Thus some might find it hard to justify a long position in the company at this point. Therefore, QS stock remains a speculative play in the EV space, as no one can guarantee whether it can successfully commercialize solid-state battery technology.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.

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