There’s nothing wrong with supporting the vehicle electrification movement. However, investors need to be cautious when it comes to QuantumScape (NYSE:QS). The company’s financials aren’t ideal, and QS stock could continue to slide as QuantumScape will need time — maybe months or even years — to fully commercialize its products.
QuantumScape’s primary business is developing solid-state lithium-metal batteries for electric vehicles. This is still an emerging, early stage technology, so investors will need to be patient.
Yet, one’s patience can only be stretched so far, especially as QuantumScape might not generate any revenue for a while. It’s fine to have ambitious dreams of powerful, multi-layered battery cells, but it appears that QuantumScape may be insufficiently capitalized to provide much value to the company’s shareholders.
What’s Happening with QS Stock?
Falling from $23 to less than $6, QS stock was a poor performer in 2022. There’s an imminent risk that QuantumScape’s investors may soon be holding a penny stock.
Meanwhile, QuantumScape’s management seems less concerned with the company’s financials, than with adding more layers to the company’s battery cells. QuantumScape is strongly focused on its experimental 16-layer and 24-layer solid-state cells, including a recently shipped 24-layer prototype lithium-metal battery cell.
That’s all fine and well, but when will this technology be monetized? It certainly costs a great deal of money to develop these battery cells, and QuantumScape co-founder and CEO Jagdeep Singh admitted, “[T]here’s still a lot to do before this technology becomes a commercial product.”
Goldman Sachs Analysts Note Financial Challenges
Again, investors can only remain patient for so long. QuantumScape acknowledged in a Form 10-Q that it has no revenue and multi-million-dollar net earnings losses. Furthermore, QuantumScape expects “to incur significant expenses and continuing losses for the foreseeable future.”
Without a doubt, analysts at Goldman Sachs understood these financial issues when they downgraded QS stock from “neutral” to “sell.” Along with that rating reduction, the analysts slashed their price target on QuantumScape shares from $8 to $5.
Analyst Mark Delaney cited potential concerns about QuantumScape’s free cash flow and earnings per share.
“Even if/when the technology is commercially ready, we believe … that ramping into volume production as a new entrant could also pressure FCF,” Delaney explained.
Moreover, the Goldman Sachs analyst observed that investors are “increasingly focused on EPS power and FCF in light of the tough macro conditions,” and concluded that “QuantumScape shares will underperform our broader coverage.” Thus, QuantumScape might not be in a good enough financial condition to effectively commercialize its batteries, if and when the company reaches that stage.
What You Can Do Now
QuantumScape might impress some folks with the company’s multi-layered battery cells. This technology could be a game-changer someday. Are investors willing and able to wait around, however, while QuantumScape continues to generate no revenue or income?
Also, how much longer can the shareholders withstand losses in QS stock? These are tough questions, but prospective and current investors have to face the facts. QuantumScape’s financial challenges could persist for a long time, so it’s wise to avoid this stock for the time being.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.