The electric vehicle industry is a hotbed of innovation, with companies making massive investments to take advantage of extremely strong consumer demand for EVs. With the size of the market already exceeding $1 trillion and expected to grow at a healthy pace through 2030 and beyond, the stakes are huge, and the payoffs for groundbreaking technology could be enormous.

QuantumScape (QS -2.99%) is one company that has garnered a lot of attention in the EV space. The company is specializing in EV battery technology, with the hope that it can build more efficient, higher-capacity batteries that will represent a major advance in the way that automakers design their vehicles. Yet in the current market environment, investors are less patient with companies that are still a long way out from making money, and shareholders in QuantumScape might have to wait quite a while before the company will even start seeing consistent revenue from its business, let alone profits.

That has one major player on Wall Street calling it quits, and QuantumScape stock fell more than 7% early Wednesday as a result. That leaves an obvious question: Should you give up on QuantumScape too?

Goldman pulls the plug on QuantumScape stock

Analysts at Goldman Sachs were the latest to give QuantumScape some tough love with respect to its corporate strategy and outlook. The Wall Street giant downgraded its views on QuantumScape from neutral to sell, and it cut its price target on the stock to $5, $3 lower than its previous projection.

Goldman's views on QuantumScape were succinct and easy to understand. The analysts believe that QuantumScape still has a long road ahead of it before it will be able to bring any viable battery products to market. As a result, investors will have to endure several years of negative earnings and free cash flow, as QuantumScape burns through cash with its ongoing research and development efforts.

That state of affairs for QuantumScape's business isn't new, but the macroeconomic environment is, and it poses increasing challenges for the EV battery developer. That's why Goldman sees QuantumScape underperforming other EV industry players that are closer to profitability and positive free cash flow, because those rivals will be better able to sustain themselves financially under hostile conditions.

Promising lithium-metal technology

QuantumScape's potential comes from its efforts to develop lithium metal batteries, which could have significant advantages over current lithium-ion battery technology. Early efforts have shown considerable promise toward reaching the goal of having shorter recharging times while boosting the energy density of batteries, allowing for higher capacity with less weight.

The question, though, is whether QuantumScape will prove to be the winner. Its backing from German auto giant Volkswagen has been an essential source of funding, but rival automakers are backing other companies doing similar research into battery technology. Moreover, QuantumScape hasn't proven that it will be able to scale up production to quantities sufficient to meet demand from Volkswagen and other prospective customers.

Uncertainty remains

With the downgrade, QuantumScape shares are hitting their lowest level since coming public through a special purpose acquisition company merger back in September 2020. The stock has lost about two-thirds of its value just since the beginning of 2022, and it's down 95% from its highs shortly after shares started trading. For investors who are comfortable waiting several years to see if QuantumScape proves successful, that could make the stock look attractive right now. For those who want a quicker payoff, however, selling QuantumScape in favor of other EV companies with more immediate prospects for profit could be the better move.