QuantumScape Stock’s High-Flying Days May be Over

So far in August, QuantumScape (NYSE:QS) shares have declined sharply. With this nearly 50% drop in price in a matter of weeks, some may think that QS stock is oversold, and a great opportunity for short-term traders and long-term investors alike.

For the near-term minded, QS may seem like a buy on weakness, ahead of its next turbo-charged rallies. Such rallies (fueled more by speculative frenzy than material news) have played out many times since the start of the year.

For those with a longer time horizon, this stock may appear to be an opportunity with big upside and limited downside.

In the view of long-term bulls, all it’ll take is for QuantumScape to make a major technological breakthrough that will pave the way for commercialization, and a big rebound in its stock price.

Unfortunately, it’s very questionable whether either scenario will play out. Here’s why.

Don’t Count on Wave of Speculative Frenzy

I know what you’re thinking. It’s too soon to say that QuantumScape will fail to experience yet another high double-digit swing to the upside. After all, won’t it take just another concentrated wave of buying from fans of the stock to cause another temporary spike?

Perhaps, but it’s also possible that many of them have bailed on QS stock completely, and have little interest in coming back. It all has to do with QS’s surprise share offering announcement.

This angered many investors once bullish about the stock. Why? This news came only days after the company’s earnings report/updates to guidance indicated that it was in no immediate need to raise more cash.

That’s not all. Although things like unexpected shareholder dilution will not keep short-squeeze speculators away, QS’s “squeeze appeal” may fade, nonetheless.

In recent months, short interest in QS has declined. According to Fintel, the percentage of QS shares sold short has dropped from 21.41% to around 16.6% since June 30.

Considering this, the wild moves experienced by QS, such as what played out last month, or what played out back in February, may not repeat themselves in the quarters ahead.

The Long-Term Bull Case on QS Stock

Okay, so QS stock is far too risky to dabble in as a trade, but what’s wrong with its merits as a long-term growth investment? There are many reasons why a “liftoff moment” will fail to ever happen for QuantumScape.

The company has made underwhelming progress in developing solid state batteries (or SSBs) for EVs. Even if progress picks up, reaching the commercialization stage may not necessarily mean big gains ahead for QuantumScape shares.

Mostly, because heavy shareholder dilution in the future will water down long-term returns. The company is likely to raise substantially more capital if/when it ramps up SSB production. Alongside execution and dilution risks, there is also the risk of competition.

Established battery makers like CATL and Samsung SDI are at work with their own SSB endeavors. So too is automaker Toyota Motor (NYSE:TM).

As a Seeking Alpha commentator recently pointed out, there are two other publicly-traded SSB upstarts, SES AI (NYSE:SES) and Solid Power (NASDAQ:SLDP). Per the commentator, SES AI has made greater technological progress.

Solid Power (with its licensing-based business model) may have a stronger shot at commercial success.

A Clear-Cut ‘Avoid’ Situation

Other early stage companies in the EV sector may have comeback potential, but I wouldn’t hold my breath regarding one for QuantumScape.

As a short-term trade, QS’s appeal is waning. The days of surges and sinkings, common with popular speculative EV plays like Rivian (NASDAQ:RIVN) could come to an end. From here, shares may be at risk of a continued slide, much like other “EV stock also-rans” have experienced.

As a long-term investment, there are simply too many challenges for the company to overcome.

It would be easier to believe that QuantumScape had a strong chance of proving the skeptics wrong, if, like I pointed out recently, insiders were buying more shares rather than exercising options then cashing out.

Barring a dramatic change to the story (such as the unexpected announcement of a major breakthrough), QS stock remains a clear-cut “avoid” situation.

On the date of publication, Thomas Niel 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.