Sunday, February 25, 2024
Dividend Stocks

QS Stock Warning: Why QuantumScape Desperately Needs a Valentine’s Day Miracle

It wasn’t until 2020 that investors started to accept EV stocks. Many SPAC-backed startups in these sectors have since faltered, undergoing significant declines from IPO highs. QuantumScape (NASDAQ:QS) epitomized this trend, soaring to a $50 billion market cap without revenue. Subsequently, QS stock has plummeted by 94%, reflecting waning investor patience. This fact is central to this QS stock forecast.

While QuantumScape holds promise, investors should still exercise caution due to its lack of revenue. Despite substantial research expenses, the company burns around $350 million annually. With more than $1 billion in cash reserves post-SPAC merger, the company does have a few years of financial runway. 

However, QuantumScape must demonstrate solid-state battery viability for automakers within the next year or so. If it doesn’t, I think most investor fears about the company’s viability will come to fruition, as competitors increasingly pick up share in this market.

Fed’s Big Impact on QuantumScape and Other EVs

EV stocks plunged on Monday amid expectations of prolonged higher rates. Federal Reserve Chair Jerome Powell’s remarks on cautious rate adjustments unsettled investors. Shares of QuantumScape and other major EV names dipped significantly on this news. Indeed, investors in such long-duration assets need to see interest rates come down, or valuations make even less sense at current levels.

Market movements are amplifying rate trends, which are on the rise. However, the Fed only influences short term rates, not long-term ones. This recent shift reflects a correction from previous expectations of Fed rate cuts in 2024.

EV manufacturers and EV-related stocks face challenges when interest rates rise, affecting consumer affordability and investor sentiment. Thus, the macro narrative will continue to be important for investors in QS stock to watch closely.

QS Stock Has Seen Some Momentum Though

Last month, QuantumScape achieved a significant milestone in solid-state battery technology. The company’s solid-state cell exceeded A-sample test requirements, enduring over 1,000 charging cycles with minimal aging and retaining 95% capacity. Tests were conducted at PowerCo’s Salzgitter battery labs.

PowerCo CEO Frank Blome lauds impressive results validating solid-state cell potential: longer ranges, rapid charging, and minimal aging. QuantumScape’s cell surpassed industry standards with over 700 cycles and less than 20% capacity loss, meeting fast charging, safety, and self-discharge criteria. This information was all reported in a Q3 2023 shareholder letter.

QuantumScape CEO Jagdeep Singh hails PowerCo’s test results, emphasizing the exceptional performance of anodes solid-state lithium-metal cells. The tested cell, comprising 24 layers, aligns with series cell plans. Volkswagen’s unified cell concept supports solid-state cell technology, with the group investing in QuantumScape since 2012.

QS is a Goner

QuantumScape focuses on testing, production prep, manufacturing, and R&D amid ongoing financial challenges. With $1.1 billion in cash, the company will be able to operate until around 2026, though risks persist. If cash burn picks up, or companies move to competitors, the writing could soon be on the wall for this solid-state batter player. This is another key part to this QS stock forecast.

I may be wrong about QuantumScape now, but all we can do is wait for the company’s Q4 earnings report. QuantumScape investors anticipate a potential share boost as the EV battery innovator reports Q4 earnings on Valentine’s Day. Recent stock performance suggests optimism, but bearish sentiment looms amid six months of decline.

QS stock gained momentum due to positive results from PowerCo’s endurance test on QuantumScape’s solid-state cell, surpassing expectations. Despite past updates and delays, 2024 brings promising progress. However, Wall Street remains cautious about Q4 earnings, anticipating a slight improvement. I’m remaining in the bearish camp with respect to this stock, at least for now. Unless something miraculous is reported during the company’s upcoming earnings call, QS stock will remain a sell.

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 Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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