Last year, battery maker QuantumScape (NYSE:QS) was one of the biggest beneficiaries of the EV (Electric Vehicle) boom. QS stock logged a staggering gain of 745%.
But the momentum has certainly been losing steam. At the start of the new year, the shares plunged from $84.45 to $49.95.
There was also little news to explain this. For the most part, it looks like panic selling was the main reason as investors wanted to preserve their massive gains.
It’s true that QS stock has since increased to $54. But the shares still well off the high of $132.
Then what now? Well, I don’t think there’s much opportunity here unless you are a day trader. Let’s face it, the valuation is fairly stretched. The market capitalization remains at $19.7 billion. This is definitely steep for a company that has no revenues.
But there are other issues with QS stock. So let’s take a deeper look.
A Closer Look at QS Stock
The origins of QuantumScape go back about a decade. The founders of the company include Jagdeep Singh and Stanford professor Fritz Prinz. The mission was to develop next-generation solid-state lithium-ion batteries for EVs.
With this approach, the founders were convinced that the technology would be cheaper, have higher performance, much faster charging and less vulnerability to overheating.
They had little trouble getting early interest in the company. In 2012, QuantumScape was able to forge a partnership with Volkswagen and the automaker wound up eventually investing up to $300 million in the startup. There was also an investment from Microsoft (NASDAQ:MSFT) co-founder, Bill Gates.
In terms of the public offering, QuantumScape merged into a special purpose acquisition company (SPAC) in September. The deal resulted in $1 billion in funding.
But QuantumScape is still more of a concept company. Even though the technology is compelling, they don’t expect it to be available commercially before 2024. And Even this timeline may prove optimistic. As seen with other EV companies – including Tesla (NASDAQ:TSLA) – deadlines are often missed.
Besides, battery technology is extremely complicated. After all, this is why there has been moderate innovation for decades.
True, if QuantumScape can succeed with its ambitious efforts, the revenue potential is substantial. According to the company’s own estimates, it could top $6.4 billion by 2028.
Then again, a lot can happen in the next few years. Perhaps Tesla or Toyota (NYSE:TM) may have its own innovations as well as various other startups like Solid Power. Even Apple (NASDAQ:AAPL) could be a rival.
What’s more, there will be a need for building global infrastructure and strong production systems. There could also be challenges with getting adoption of the technology, especially if there are alternatives on the market.
Bottom Line on QS Stock
It’s certainly true that QuantumScape has many advantages. The company has more than 200 patents on its technology and roughly 100 trademarks. Of course, this intellectual property is quite valuable.
Next, QuantumScape is the only lithium-metal solid-state battery company that has an OEM partner. This provides a first-mover advantage in the market and strong momentum.
Something else: QuantumScape’s technology could have applications beyond the auto industry. For example, it could be useful with wearables and smartphones.
But while all this is encouraging, I still think there should be caution with QS stock. The trading has been fairly erratic lately. There may also be downward pressure from insider sales.
Consider that the company recently filed an S-1 with the Securities and Exchange Commission to register 306 million shares. Given the volatility with the stock, it would be normal to see large sales.
Thus, for the time being, it is probably a good idea to be patient with QS stock.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.