After months of relatively little news, early-stage electric vehicle battery Quantumscape (NYSE:QS) is again making headlines. However, far from giving shares a jolt in the arm, this latest news has only had a short-lived positive impact on the price of QS stock.
After briefly spiking on the news it would ship prototypes, shares have given back these gains and then some. Perhaps you can chalk this up to other reasons, but it’s possible too that investors quickly realized that while hitting milestones is certainly not a negative, it changes little with the “story” behind this company, which is essentially a publicly-traded startup.
With this, don’t expect this news, or subsequent developments, to have much of a positive impact on shares in the near term. In fact, with these small positives outweighed by larger negative factors, Quantumscape remains likely to stay on its downward trajectory for quite some time.
QS Stock: Why the Latest News Isn’t Moving the Needle
As I’ve discussed previously, Quantumscape is looking to bring possibly game-changing EV battery technology to market. The company is currently working on developing solid-state batteries (or SSBs) for EVs. SSBs have the potential to offer many efficiencies, range and safety advantages over the lithium-ion batteries currently used to power electrified vehicles.
This week, QS announced a major development milestone: it has started to ship battery prototypes to its automaker partners for testing. Following the announcement, before the market opened on Dec. 20, QS stock spiked by as much as 14.9% from the stock’s closing price the preceding day. Yet almost as quickly as shares spiked, however, QS pulled back, closing the trading day in the red.
Again, this could be due to several factors, yet it could be simply that the market recognizes that this news is hardly “game-changing” for Quantumscape’s prospects. Shipping out prototypes is one thing. Whether these prototypes make it through the testing stage is another.
Beyond just the fact that the company’s SSB technology has several more stages to go before it’s road-ready, recent “prototype progress” does little to make up for the issues that have, and will continue, to negatively affect its performance.
This Former ‘Hot Stock’ Could Soon Become a Penny Stock
QS stock has experienced a severe drop in price over the past two years. Trading for triple-digit prices in late 2020, the bursting of the EV stock bubble, along with the stock market downturn over the past year, has pushed shares down to high single-digit prices.
However, don’t assume this means Quantumscape has bottomed out, and there’s a minimal downside from here. It’s not outside the realm of possibility that QS falls below $5 per share and officially becomes a penny stock. Mostly, because QS is too far away from moving from the development stage to the commercialization stage.
Management has previously stated that battery production will begin by 2024. Even then, chances are it’ll take several more years after that for the company to reach profitability. This points to many more years ahead of cash burn. That’s bad news for QS stock, in two ways.
First, with the rise in interest rates, shares in unprofitable companies have fallen out of favor, with the market valuing them even less future potential than before. As rates keep rising, this trend may continue. Second, heavy cash burn points to an eventual dilutive capital raise.
Bottom Line on QS Stock
Sure, right now Quantumscape isn’t in urgent need of additional capital. With around $1.15 billion in cash on hand, the company has more than enough in its war chest to keep the lights on in the near term.
Beyond the near or so, though, it’s questionable. It’s hard to imagine QS being able to sustain a few more years of losses and commence production, with just its current cash position.
There is a strong likelihood this EV battery upstart will sell additional shares. Doing so will come at the expense of existing shareholders, reducing the current value, and future upside, of their positions.
Taking into account its current commercialization timeline, and likely continued heavy cash burn, QS stock is likely heading lower. After further declines, shares may be worth another look, but for now, the best move is to stay away.
QS stock earns a D rating in Portfolio Grader.
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.