Quantumscape Has Limited Prospects Until It Can Produce Sales

• Quantumscape (NYSE:QS) is down 29% year-t0-date and off more than 61% from its peak on Nov. 15.
• The company’s latest earnings report shows no revenue, as expected, and continuing losses. However, capex was as expected.
• Prospects for revenue for the solid-state electric battery maker are years in the future, which is keeping QS stock down.

Quantumscape, the solid-state battery manufacturer, has had a very difficult six months. As of March 16, QS stock was at $15.69, down 29% year-to-date (YTD). But since Nov. 15, it has fallen completely off its recent high by more than 61%. And it is still falling.

Now we know more about why this is happening. On Feb. 16, the company released its latest shareholder letter covering developments in the last quarter. The problem with their letter is it is not like any other shareholder letter.

Where Things Stand at Quatumscape

First, there is no financial information. It is written like an engineering document. It talks about the latest developments at the company, but there is no reference point. The letter discusses its technical milestones, hoops it has to jump through, scale-up progress, tooling and customer engagement.

Next, buried deep in the letter, it talks about its financial outlook for 2022. What emerges is the following: the company spent $279 million in capital expenditures during 2021 and now expects $325 million to $375 million in “capital investment” during 2022.

Moreover, as of the end of December, the company said it had $1.4 billion in “liquidity.” Its balance sheet says it had $320.8 million in cash as well as $1.13 billion in marketable securities. In addition, its cash flow statement shows that there was an outflow of $385 million in cash during the year. That is substantially more than the capex spend of $279 million.

The bottom line is Quantumscape will likely not receive any ongoing income or revenue from sales of solid-state batteries until 2024. This is based on page 28 of the company’s September 2020 investor presentation.

However, the company has not followed up with these projections since then. In fact, there is nothing in the latest shareholder letter that shows when the company expects to start producing revenue.

On Jan. 13, Quantumscape announced a new partnership that will allow it to produce batteries for more than electric vehicles (EVs). Its deal with Fluence Energy (NASDAQ:FLNC) allows it to bring solid-state batteries to stationary energy storage applications.

This will open up large markets for Quantumscape, including utilities (battery-based storage on the electric grid.) So far, however, there is no indication when this will lead to any kind of revenue. The latest shareholder letter does not discuss when this could happen.

Where This Leaves Investors In QS Stock

Wall Street analysts still seem to be enamored with this research and development (R&D) company as if its value is quite high. For example, a survey by Refinitiv of six analysts covering the stock shows their average price target is $23.50 per share. That is almost 50% more than the price as of March 16.

Similarly, TipRanks reports the average of four analysts that have written on the stock in the last three months is $23.75, or 51% over today’s price. These analysts are all believers in the company and its future prospects as a solid-state battery producer.

Moreover, as I pointed out in previous articles, Tesla (NASDAQ:TSLA) has no relationship with the company and apparently is not involved in helping to fund its technology.

Therefore, one needs to have a lot of faith in this company. Right now, it is nothing more than an R&D company with revenue prospects if a series of technical hoops are successfully jumped through. Nevertheless, analysts seem to believe in it.

What to Do With QS Stock

One thing is for sure. This is not a typical value-oriented stock. QS stock is highly speculative. The company has not reached a commercialization stage for its products, so that takes a lot of faith. Even if they agree with the analysts, interested investors should bear in mind its upside will be limited until it shows it can generate sales.

On the date of publication, Mark Hake did not hold (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.