There are better options for investors to consider in the battery space right now
If QuantumScape (NYSE:QS), a solid-state battery producer, successfully brings these batteries to the market, investors might be in for some significant profits. Indeed, solid-state batteries have been touted as the future. These alternatives to traditional lithium-ion batteries are safer, can charge faster, and hold more charge (leading to more range). Thus, for those banking on continued innovation in the EV space, QS stock is among the top options many speculators are focusing on.
The company is burning through cash as it looks to bring its batteries to market, and is still in its development phase. Accordingly, there’s plenty of skepticism among many investors (myself included) as to whether QuantumScape will be first to market, or beaten over time by competitor offerings. That remains to be seen.
What’s for certain is that investors have a rather intriguing speculative stock to consider in the battery space. With that said, let’s dive into the bullish and bearish case behind this company.
The Bull Case
The long-term goals of QuantumScape’s management include completing the prototype and making $10 billion in revenue. The company has set a wide range of targets for its batteries, all of which must be commercially viable for the company to achieve its goals.
Compared to current models, QuantumScape’s solid-state separator provides 50% faster charging speeds and 80% greater range, eliminating the need for anode materials and manufacturing expenses. This gives QuantumScape a pretty sizeable (yet, theoretical) competitive edge at scale.
As EVs become more popular, QuantumScape is focusing solely on EV battery technology, which is expected to increase. Beyond EVs, which are useful in consumer electronics and stationary storage, its technology has plenty of other uses. Even though investing involves cash flow and technology concerns, QS’s business plan should allow it to continue operating until 2026. If commercialization takes place within this time frame, and the company can grow profitably, this is a compelling stock at current levels.
The Bear Case
Bears will argue that there is a need to reinvent EV batteries using solid-state technology and outperform performance expectations. So, professors back in 2010 at Stanford University took it upon themselves and incorporated QuantumScape. VW Group received prototypes, which helped them realize their goal. Their creativity made them leap towards profitable breakthroughs even with hurdles like production costs. With VW’s support, QS stock is set to go toe-to-toe with Toyota’s hydrogen batteries through mass manufacture.
A change in CEOs was also recently made, along with a drop in cash reserves to $142.524 million and an increase in expenses to $124.64 million. QuantumScape’s Q4 fiscal 2023 results highlighted these moves, which were met with some skepticism from certain market participants. Notably, a detailed study of shareholder letters revealed no schedule for commercialization, plus the company’s net loss grew to $113.339 million. That’s an overly bearish setup right now for existing investors.
Of course, those with a longer-term investing time horizon can brush off these concerns. But the company will certainly need to execute its plans, and fast, to avoid investor flight to other competitors. Right now, it appears QuantumScape is in a race against the clock, and investors are starting to notice.
Bottomline
QS stock will likely continue to see a high level of scrutiny as the company proceeds forward with its commercialization plans. There’s no doubt about it – this is a high-risk, high-potential stock. Right now, it’s mostly potential, though there is a $1 billion cash buffer investors have noted that provides significant runway moving forward.
I’m of the view that solid-state battery technology may be a longer way out than many think. Accordingly, at some point, there will be capital concerns, meaning more dilution or debt will be needed to take this company along its commercialization path.
Thus, investors who are willing to be patient may be able to buy this stock at lower prices moving forward. But for those looking to speculate on short-term jumps in excitement in the EV sector, QS stock will certainly remain a vehicle to trade this sentiment. It all depends on your time horizon.
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.
