QS Stock: 2 Red Flags That Spell Disaster for QuantumScape Investors

There’s no denying that electric vehicle battery technology company QuantumScape (NYSE:QS) is an early mover in a high-conviction niche industry. QS stock investors have every right to be excited about QuantumScape’s advancements in developing solid-state lithium batteries.

QuantumScape’s path to product commercialization doesn’t seem to have any end in sight. Financial traders should remain cautious for now.

In theory, there’s nothing wrong with investing in pioneers and innovators. Sure, it’s a risky bet, but a company like QuantumScape has the potential to build a niche, next-gen EV battery industry from scratch.

Still, over the long run, QuantumScape stock has gone nowhere fast and investors can only have so much faith in the company.

If QuantumScape doesn’t speed up its timeline to profitability and provide more specifics on how the company will get there, it will be awfully difficult for the shareholders to stay on the long side of the trade.

Risk #1: A Shrinking Capital Position and QS Stock

Here’s an example of why investors shouldn’t solely rely on corporate press releases to get the full picture about a company. QuantumScape’s Form 10-Q for 2023’s first quarter reveals a lot about the company’s financial situation. The situation isn’t a good one.

Don’t waste your time trying to find QuantumScape’s trailing price-to-earnings (P/E) ratio or anything like that. This is a risky business that has no sales or earnings. Of course, you won’t find any press releases from QuantumScape that emphasize these issues.

QuantumScape’s quarterly Form 10-Q reveals some unfortunate facts about the company. For example, QuantumScape’s total operating expenses increased from $90.657 million in 2022’s first quarter to $109.978 million in the first quarter of 2023.

Really, the company should consider cost containment instead of spending more.

During that same time frame, QuantumScape’s net earnings loss grew from $90.353 million to $104.631 million. On top of all that, the company’s cash, cash equivalents and restricted cash dwindled from $300.535 million to $258.733 million.

These are troubling trends that certainly don’t bode well for QuantumScape and its stakeholders.

Risk #2: Gradual Progress Poses a Problem

Another risk for QS stock is that QuantumScape isn’t moving quickly toward product commercialization and profitability. Think about it: How long are investors going to stand by a pre-revenue business?

Even the most loyal QuantumScape shareholder will only wait for so long, especially if the stock price is declining.

Sure, it was exciting when QuantumScape finally shipped out its first 24-layer prototype battery cells to automotive manufacturers. That was nearly five months ago, though.

Regarding updates on eventually bringing these battery cells to market, QuantumScape provided little anything until recently.

In a recent shareholder letter, QuantumScape admitted that it still has “work to do to improve reliability as we transition from prototype to commercial product.” That’s not very encouraging, you must admit.

In the company’s latest Form 10-Q, QuantumScape provided no timeline in the section titled “Commercialization and Market Focus.”

That’s disappointing, and the company should have attached a date to the statement that QuantumScape is “currently targeting the initial production of C-sample battery cells at QS-0.”

Don’t Be Hasty With QuantumScape Stock

So now, we can clearly see two major risks that are likely to weigh on QuantumScape stock. The company’s timeline to product commercialization isn’t moving quickly and isn’t specific enough. QuantumScape’s capital position is moving in the wrong direction.

It pains me to report these issues, as I still feel that QuantumScape is a promising pioneer in the EV battery market. That’s just a feeling, though, and the hard data doesn’t look encouraging for QuantumScape. Therefore, prospective investors should know the company’s risks and would be wise to avoid QS stock.

On the date of publication, David Moadel 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.