Will QuantumScape (QS 5.69%) stock take a quantum leap during the next decade? Anything's possible on Wall Street, but prospective investors should consider QuantumScape's financial issues along with the company's drive to change the electric vehicle (EV) battery landscape.
It's a noble goal, but questions linger about QuantumScape's ability to get there. Like a battery that needs to be recharged, QuantumScape may end up low on capital in the coming years. This could lead to capital-raising activity and, for QuantumScape's current shareholders, a great deal of consternation.
Big dreams, few updates
In December 2022, QuantumScape shipped its first 24-layer prototype battery cells to automotive companies for testing. This was a milestone moment for QuantumScape. At the time, it felt like the company was making real progress toward product commercialization.
QuantumScape stock traded at around $7 per share at the time of that announcement. Fast-forward to the end of 2023, and the stock remained at that same price level. There was scant reward for all of the volatility along the way -- and make no mistake about it, QuantumScape stock is quite volatile, with a five-year monthly beta of 5 (meaning, the stock has historically tended to move five times as fast as the S&P 500).
In other words, QuantumScape has been terrific for short-term traders but frustrating for long-term investors. Bear in mind that QuantumScape should have been a powerful performer in 2023 as the stock market rallied sharply, and U.S. electric car sales increased 50% from 2022 levels.
Looking back at QuantumScape's press releases page, the company's operational updates were infrequent and mainly consisted of quarterly shareholder letters. In QuantumScape's most recently published quarterly shareholder letter, the company provided some follow-up on the prototype battery cells shipped to prospective customers.
One key point was that one of the prototype cells "achieved over 1,000 full cycle equivalents with over 95% discharge energy retention." Another point was that QuantumScape seeks to "improve the cell packaging efficiency" of its prototype cells.
Careening down the cash runway
What you won't find in QuantumScape's aforementioned shareholder letter is an extensive discussion of the company's revenue. This is because, as of Sept. 30, 2023, QuantumScape "had not derived revenue from its principal business activities." That's a piece of information that is tucked away in QuantumScape's Form 10-Q filing.
That's not the only financial red flag in QuantumScape's quarterly filing. As it turns out, the company incurred a $331.7 million net loss in the nine months ended Sept. 30, 2023, after sustaining a $302.8 million net loss in the comparable year-earlier period.
QuantumScape's management forecasts that the company's "cash runway will extend into 2026." This would be more comforting if QuantumScape provided a ballpark figure for full product commercialization, but the company's shareholder letter doesn't do that.
Some analysts worry that the company may need to turn to raising capital. It's a justifiable concern because QuantumScape already printed up 37.5 million shares for sale this past August. Once a company demonstrates its willingness to subject the current shareholders to dilution risk, it's not inconceivable that the company will resort to this capital-raising tactic again in the future.
Thus, QuantumScape stock could just as easily be a 10-bagger or a literal penny stock in a decade. The next few years will be make-or-break for QuantumScape as investors will have a clearer picture of how far the company's cash runway actually extends and whether further share-dilution activity will be necessary to keep that runway intact.
The best-case scenario would be for QuantumScape to offer at least a ballpark timetable for full product commercialization, revenue realization, and, eventually, profitability. For now, however, that's a dream deferred.
Until the company demonstrates that its EV battery cell technology is not only technologically envelope-pushing but also financially viable, it's fine to harbor the fantasy of QuantumScape stock soaring to triple digits but also to be prepared that it could turn your invested dollars into pennies.
