QuantumScape’s Fall from Grace: Why QS Stock Might Hit $2

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Some investors are staying loyal to electric vehicle battery technology company QuantumScape (NYSE:QS) through the tough times. That’s a mistake, as I expect QS stock to continue on its downward trajectory.

There’s at least one expert on Wall Street who shares my bearish outlook on QuantumScape.

QuantumScape is attempting to develop the Holy Grail in the EV space: a “forever battery” that lasts longer, charges faster and is safer than conventional EV batteries. It’s a great idea, but when will QuantumScape cross the wide gulf between having an idea and actually making money?

That’s a valid question that financial traders shouldn’t ignore. In the final analysis, QuantumScape’s “forever battery” ambitions may be commendable, but investors shouldn’t have to wait forever for QuantumScape to successfully commercialize its products.

QuantumScape Knows How to Spend Money

In QuantumScape’s most recent investor presentation, the company boasts that it has spent over $500 million “on development to date.” The implication, I presume, is that lots of money spent equals lots of progress made.

That’s not how I see it. The takeaway, for me, is that QuantumScape knows how to spend hundreds of millions of dollars while staying quiet on its operational progress.

QuantumScape rarely updates its press releases page. It’s now been a full six months since QuantumScape shipped its first 24-layer prototype battery cells to automotive manufacturers.

I fully concur with Thomas Niel’s observation that QuantumScape “has remained vague in providing an updated timeline to commercialization.” Niel is also spot-on when he states, “It’s also far from a given the company’s efforts result in a salable product.”

It’s known that QuantumScape has spent a boatload of money, and it’s unknown whether this will result in meaningful ROI someday. With its insufficient operational updates, QuantumScape continues to frustrate investors and commentators in 2023.

QS Stock Gets a Downgrade and Price-Target Cut

Thanks to William White’s report, I learned that a prominent expert on Wall Street recently downgraded QuantumScape. This won’t make QuantumScape’s investors happy, but the truth needs to be told.

So, here’s the lowdown. Wolfe Research analyst Rod Lache downgraded QS stock from “peer perform” to “underperform” and set a price target of just $2 on the shares. That implies a huge drawdown from the current stock price of around $6.

As White summed it up, Lache expressed concerns about QuantumScape’s “long path to commercialization, as well as the speculative nature of its battery technology breakthroughs.”

I share those concerns, and will add one more to the mix: the possibility of financial failure.

Niel did the math, calculating that QuantumScape “may end up having to raise many times its current market cap in order to enter the full production stage.”

It wouldn’t surprise me at all if QuantumScape ends up printing and selling many shares to achieve this. And if that happens, QS stock could easily fall to $2 or even lower.

$2 May Be in the Cards for QS Stock

Frankly, QuantumScape shouldn’t brag about spending hundreds of millions of dollars. Instead, the company should provide frequent, specific and measurable operational and financial updates.

To put it another way, QuantumScape is replete with big dreams and big spending, but not material progress and profits. Therefore, don’t be too surprised if QS stock ends up at or below $2.

And if you’re a current QuantumScape shareholder, your frustration is understandable. It’s fine to sell your stock today, since your losses are likely to get worse.

On the date of publication, David Moadel 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.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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