QuantumScape: Hindered by Lack of Near-Term Catalysts

QuantumScape (NYSE:QS) is a speculative pre-revenue stage company operating in the next-generation electric battery industry. The company claims to have advanced technology that could represent a great leap forward in electric battery performance. However, short sellers published scathing criticisms of QuantumScape’s technology and management team last year, leading to a massive decline. QS stock is down over 75% from its 52-week highs.

The recent sell-offs in special purpose acquisition companies (SPACs) and speculative growth companies haven’t helped matters either. The investing landscape has shifted. So-called “memes and dreams” stocks are on the way out, while investors suddenly focus on stodgier companies in old economy industries such as fossil fuels, banks, and packaged food and beverages.

Given this changing landscape, QS stock could continue to underperform for an extended period. There is simply not much here to change sentiment anytime soon. To start, though, what got folks so excited about QuantumScape in the first place?

Batteries Are Crucial to the EV Industry

According to International Energy Agency (IEA) projections, the electric vehicle (EV) market is set to skyrocket. The IEA sees the number of electric vehicles on the road surging from 6.8 million in 2020 to 145 million in 2030.

However, a big issue here will be the batteries. Current battery technology just isn’t that great. Existing options are expensive, heavy, take up a good deal of space, and degrade significantly over a meaningful number of recharge cycles. If electric vehicles are going to continue their ascent, better batteries are a must. For both environmental and economic reasons, batteries are a focal point of the green revolution.

This is well-known, however, and companies have thrown countless billions at the problem already. The investing landscape is littered with once-prominent battery start-ups that went bankrupt and whose stocks went to zero.

Batteries are a tough problem. The stakes are absolutely huge, as the winner could be a $100 billion company, or even more. But the vast majority of battery players will never reach significant commercial success or profitability.

QuantumScape: Not Much On The Horizon

QuantumScape has an earnings report coming up in mid-February. However, the company doesn’t generate revenues and seems unlikely to anytime soon. So, there is unlikely to be anything material that would change QuantumScape’s outlook in its 2022 earnings reports.

From time to time, QuantumScape announces small bits of news. These are things such as sending out battery samples to partners or signing new partnerships.

For example, in January, QuantumScape signed an agreement to work with Fluence Energy (NASDAQ:FLNC). Fluence will work with QuantumScape’s batteries and potentially eventually enter a supply deal to buy batteries from the company. Fluence deploys energy storage solutions primarily in California and Australia.

It is not hard to see how QuantumScape’s batteries could potentially help a company like Fluence. But, once again, QuantumScape has to validate its batteries in larger-scale tests, set up manufacturing, and pass quality control checks before it will start delivering meaningful battery capacity to Fluence or other potential customers. Neither QS stock nor that of Fluence did much on the news, which isn’t surprising given that the press release didn’t include concrete financial details.

QS Stock Verdict

As the price gets cheaper, QS stock does get a little more attractive. Still, the company itself is something of a binary situation. If the batteries work and and can be manufactured efficiently in large quantities, QS stock should be a winner. If management has overstated its batteries’ capacities and/or something else goes wrong along the way, there is a good chance that QuantumScape stock could go to zero.

Given that there is not much else to drive interest at QuantumScape at this point aside from its battery technology, that is the million dollar question. And, since the company won’t be generating revenues for at least the next few years, there is not an especially clear timeline or set of catalysts to change the situation.

With the large degree of risk, QS stock is not something I would be comfortable owning. But it could ultimately work out.

However, 2022 is unlikely to be a make or break year for the company. In the meantime, QS stock is continuing to struggle in these shifting market conditions. Investors want profits and cash flows today. QuantumScape won’t be able to deliver either for quite a long time yet.

On the date of publication, Ian Bezek 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.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a sizable New York City-based hedge fund. You can reach him on Twitter at @irbezek.