QuantumScape (NYSE:QS) stock surged at the start of November, but has pulled back and are likely to retreat to pre-spike price levels. It is questionable whether this speculative growth stock will charge up yet again. Barring another short-lived shift back to “risk on” by the market, chances are that shares will languish at or near current prices.
Future prospects are even more disheartening. QuantumScape is behind the eight ball. Burning through hundreds of millions each quarter, the company is making little in the way of progress. Meanwhile, rival EV battery startups charge ahead towards reaching the production stage. Unless the situation improves quickly, expect a slide to even lower prices.
QS Stock: What May Cause a Precipitous Drop
In its Q3 2023 shareholder letter, QuantumScape provided several pages of updates on its efforts to develop and commercialize solid state lithium ion batteries for passenger EVs. These updates included updates on product development, customer engagement, and the scale-up of the company’s manufacturing capacities.
However, little detail regarding a production or commercialization timeline was provided. Continued vagueness about when exactly QuantumScape will move out of the pre-revenue stage has been a factor in the steady decline in price of QS stock over the past few years. However, a more precipitous drop may be not too far off on the horizon.
Why? In prior coverage of QS, I’ve talked about various competitors to QuantumScape, and how their progress could come at this company’s expense.
These competitors include established battery makers like CATL and Samsung SDI, automakers like Toyota (NYSE:TM) that are developing SSBs in-house, as well as small, fledgling startups like Solid Power (NASDAQ:SLDP).
However, well before even these rivals to QuantumScape manage to bring their SSBs to market, yet another competitor, developing batteries that are not solid but are nonetheless revolutionary, may beat all of them to the punch.
Our Next Energy: The Last Straw for QuantumScape?
Although various SSB contenders are much further ahead than this company in bringing what could be technologically superior EV batteries to market, reaching commercial success may be closer to a decade away rather than only a few years away.
SSBs won’t be ready for the road by the mid-2020s. That is what was implied when names like QS stock went public. Instead, it may not be until the late-2020s to early 2030s that SSBs become widely used.
As mentioned above, however, another type of next generation batteries (lithium iron phosphate batteries, or LFPs) offering the same advantages could become commercially available far sooner than that.
Specifically, I’m talking about the LFPs developed by privately-held EV battery startup Our Next Energy. Just recently initiating pilot production of its LFP battery cells, by 2025 or 2026, Our Next may have its most powerful EV battery (Gemini, offering up to 600 miles of range) in production.
The availability of such batteries could severely dampen demand for QuantumScape’s SSBs, which at that point could still be far from ready to be produced on a mass scale. Hence, a major leap for Our Next Energy could be the last straw for QuantumScape.
Over the next year, commercial progress by companies like Our Next Energy could sap what remains of any excitement over QS shares.
Long standing issues like QuantumScape’s heavy cash burn (nearly $350 million in operating losses and capital expenditures over the past twelve months) and dependence on dilutive financing will also continue to weigh on the stock.
Given the waning interest in investing in EV startups, QuantumScape could even experience a serious cash crunch, where it cannot dilute shareholders through the sale of new shares.
As discussed before, shares may be worth a second look, if it finally falls to the bottom of the stock market scrap heap. For instance, if shares fall to a truly discounted price, such as a discount to book value.
But until this happens, and as the negatives keep piling up? Keep staying away from QS stock.
On the date of publication, Thomas Niel did not hold (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.