Should one Invest, Sell, or Maintain Positions in QuantumScape Stocks?
You might've heard about QuantumScape (QS dropping by 4.33%). This California-based startup is making waves by striving to create and commercialise an electric vehicle (EV) battery that could significantly surpass existing alternatives in terms of safety and performance.
Ever since the 60s, researchers have been experimenting with "solid state" battery technology. However, the challenge has been to develop a solid state battery that can endure more than a few cycles. QuantumScape may have cracked the code with its innovative ceramic "separator," which, theoretically and based on initial testing, promises long battery life.
QuantumScape debuted publicly with a bang in late 2020, but its stock has plummeted over 95% since its peak and dropped approximately 27% in 2024. Given its current status, is QuantumScape stock a buy, hold, or sell?
Is it time to sell QuantumScape stock?
There are numerous reasons to sell a stock, regardless of its company's performance or market trends. Perhaps you need the funds, wish to rebalance your portfolio, or your initial investment rationale (the reason you bought the stock) has shifted.
QuantumScape's stock performance hasn't been impressive, but its initial investment rationale remains unchanged. The company has always been a high-risk, high-reward venture aimed at developing and commercialising a new technology (solid state electric vehicle batteries) with a substantial potential market.
However, technological advancements typically proceed at a snail's pace in comparison to software development. If you own QuantumScape stock, you likely understood that it would take several years for the company to prove its technology and bring its batteries to market.
Thus far, events have unfolded as expected. No major "sell" alerts have surfaced.
The case for keeping QuantumScape stock
The debate surrounding QuantumScape stock has been focused on two key issues:
- Will QuantumScape's innovative battery separator work as advertised?
- Will the company deplete its cash reserves before it can commercialize its batteries?
The jury is still out on the first question, with the answer being "time will tell." However, the company is steadily making progress and adhering to its timeline. Recently, it started shipping "B-samples" – full-sized, functional prototypes of its EV battery – in small quantities to automakers for testing.
The "B-samples" are essentially real-deal batteries, but they are considered prototypes because they haven't yet been manufactured on a large scale for cost-effectiveness. QuantumScape anticipates making significant strides in that regard in 2025.
As for cash, that's not a concern for the foreseeable future. QuantumScape stated at the end of Q3 that it has sufficient funds to sustain its operations through 2028. Its financial reserves grew this year when it finalised a licensing deal with Volkswagen (VWAGY decreasing by 1.07%). Under this agreement, Volkswagen will prepare to mass-produce QuantumScape's batteries at scale-initially for themselves, and eventually for other clients (note: Volkswagen owns approximately 17% of QuantumScape).
In short, QuantumScape is advancing steadily and adhering to its projected timeline if you're holding the stock, it may be worth continuing to do so.
The argument for purchasing QuantumScape stock
Here's the bullish argument summarised:
- QuantumScape is working on a new type of EV battery that promises to be lighter, safer, and potentially quicker to charge than existing lithium-ion alternatives.
- The company has been making consistent progress on its battery project over an extended period and commercialization now seems imminent.
- QuantumScape enjoys the backing of a well-financed automotive investor (Volkswagen) and other international automakers interested in its technology.
- Financially, the company is well-equipped to navigate the near future and is not expected to face a liquidity crisis anytime soon.
If you believe in the future of electric vehicles, QuantumScape's investment case is compelling, albeit with a significant caveat-it's still a risky proposition.
While there's a possibility that its technology might not pan out (potentially rendering the company worthless), the signs thus far are promising. If its technology succeeds-as it apparently is-its stock is likely to command a much higher value than it does currently.
With that crucial caveat, I believe it's a buy, though a risky one. I wouldn't invest money I might need in the short term, but if you're comfortable with the risk, it's definitely worth considering.
If you have an interest in finance and are considering investing in the electric vehicle industry, QuantumScape's innovative solid-state battery technology could be an attractive opportunity. Despite its stock price drop in 2024, the company's partnership with Volkswagen and its steady progress towards commercializing its battery separator hint at potential long-term gains. Maintaining or investing in QuantumScape stock may be a strategic move for those who are willing to accept the inherent risks associated with high-risk, high-reward ventures in the field of finance.
