Is Time Running Out for QuantumScape Stock?

Solid-state battery maker QuantumScape (NYSE:QS) is living on borrowed time. It may be time to pitch QS stock.

The prototype electric vehicle battery exceeds expectations in testing but is far from being ready for commercial use. The delays are causing concern for QuantumScape’s major partner and potential customer.

Over the past few years, Volkswagen (OTCMKTS:VWAGY) invested more than $300 million into QuantumScape while also infusing more capital into a joint venture between them.

Volkswagen is also the primary tester of QuantumScape’s prototype A0 battery cell. By all accounts, it is achieving impressive results. However, a new report says the carmaker is in talks with a QuantumScape rival for its solid-state batteries.

QuantumScape is already burning through cash indicating it is will need more financial support before it’s able to go to market. If it loses its primary backer, the potential for QS stock is over. Let’s see whether investors should bother going any further.

Bad Moon Rising for QS Stock

Reuters reports Volkswagen is in talks with France’s Bollore (OTCMKTS:BOIVF) Blue Solutions division, which makes solid-state batteries for Mercedes-Benz (OTCMKTS:MBGYY) eCitaro electric buses.

It hopes to enter into an agreement to have the battery maker redesign the solid-state batteries for cars.

Solid-state batteries offer the promise of longer distances traveled and much shorter charge times. If successful, QuantumScape’s A0 battery cell could achieve a range of 650 kilometers (about 400 miles) and allow charge times of just 15 minutes.

To hit those goals QuantumScape is looking for its batteries to hit 800 cycles with 80% energy retention. In testing by Volkswagen, it’s actually getting 1,000 full cycle equivalents with over 95% discharge energy retention.

The battery maker says it knows of no other similarly designed battery for EVs that is achieving those kinds of results.

The problem is QuantumScape is still not close to getting to the production stage. Analysts don’t think it will realize any meaningful revenue until 2027. It will take several more years after that for the company to be cash flow positive. Which is why the clock is ticking down for QuantumScape.

Financial Hardship

The battery maker is burning through cash. Cash will last a few more years after a stock sale, but commercialization costs will increase. If its financial patron ultimately abandons its partnership QuantumScape could be stuck for money.

So far Volkswagen is sticking with QuantumScape, according to Reuters. The carmaker maintains the joint venture continues moving forward and it wouldn’t comment on its negotiations with Blue Solutions. But it’s clear if an already at-market battery company can turn out a solid-state battery for cars faster, Volkswagen will go where the product is.

In that scenario, the best QuantumScape could hope for is for Volkswagen to keep both companies as suppliers, though it means QuantumScape sells fewer batteries. That would have it take longer to become a viable entity until it gets new customers.

Has the Clock Run Out?

QS stock didn’t take well the news Volkswagen is pursuing another battery maker. Although shares are down just 4% year to date, they had been up as much as 33%. Now they are down 28% from that peak.

QuantumScape was always a risky investment and that hasn’t changed. Right now there is no difference in its business or operations from where it stood at the end of last year. So QS stock still holds a lot of potential but also much risk. Perhaps a bit more than before but there’s no guarantee Volkswagen reaches a deal with Blue Solutions.

It means QuantumScape still has time to prove its battery cell concept and get to the  commercialization stage. It can’t afford any setbacks or delays now that it knows Volkswagen won’t wait forever. Investors, though, should continue to approach QS stock with the greatest care.

On the date of publication, Rich Duprey 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.