Quantumscape (NYSE: QS) Stock is a Bet on EV Battery Optimization

Solid-state lithium battery maker QuantumScape Corporation NYSE: QS stock has seen its shares explode recently on the electronic vehicle (EV) mania. The momentum has spilled over to the charging stations, battery makers and even battery material suppliers that power the EVs. QuantumScape went public through a merger with Kensington Capital Acquisition, a special purpose acquisition corporation (SPAC). QuantumScape is looking to revolutionize battery technology with its solid-state lithium cell that greatly improves efficiency, lowers costs and is safer than current lithium-ion technology. The Company went “public” on Nov. 27, 2020. Shares have been a rocket ship spiking as high as $52.80 after falling as low as $23. Nimble traders and highly risk-tolerant investors can watch for opportunistic pullback levels. 

The QuantumScape Narrative

QuantumScape is a decade old start-up that is on the path of the “holy grail” of battery technology. The Company has impressive backers to validate its technology including Kleiner Perkins, Qatar Sovereign Investment Fund, JB Straubel co-founder of Tesla NASDAQ: TSLA , Bill Gates co-founder of Microsoft NASDAQ: MSFT as well as a $100 million PIPE investment from Volkswagen AG OTCMKTS: VWAGY who is also a partner and customer since 2012. Total private investments has been over $800 million. The compelling narrative behind QuantumScape is their solid-state lithium cell can boosts optimization up to 80% from the current 5% to 10% efficiency. This means EVs have the potential to travel up to 600 miles on a single charge.

In a nutshell, QuantumScape solid-state lithium metal battery technology replaces graphite with ceramic resulting quicker charges (15-minutes), more efficient battery use, lower costs and are safer (fireproof) than current lithium ion batteries. The Company has over 200 patents and 100 trade secrets for solid-state lithium metal technology. Keep in mind, the technology has proven efficient in a single layer pouch, but a multi-layer and multi-cell battery is several years away from production. Volkswagen expects its batteries to be delivered by 2025. As an investor and partner, the contract with Volkswagen alone ensures revenues locked in once the battery is produced. Volkswagen produced 11 million vehicles in 2019 and has committed to fully “electrify” all their cars by 2030.

The Risks

QuantumScape noted they won’t be cash-flow positive until 2028. The Company expects to have a “live battery” by 2024 which they will build a pilot plant before full-scale production in 2025 delivering solid-state batteries to Volkswagen. The Company mentions its biggest hurdle being the mass scaling of commercial production once the rollout is launched. This is a long time away and it means any investment is pure speculation riding the momentum of the EV trends. The race for a fast-charging solid-state lithium battery is also being pursued by many big players including Samsung OTCMKTS: SSNLF, General Motors NYSE: GM, Toyota MotorNYSE: TM and Daimler OTCMKTS: DDAIF either developing in-house or partnered with technology providers. Five years is a long wait and the elevated state of hype often precedes the reality as evidenced by the Gartner Hype Cycle. The same applied to the internet, solar energy, cloud computing, the internet of things, 3-D printing, immunotherapy and now EV and battery technology. Keep in mind, the lock-up expiration of 180-days is nullified when shares trade above $12. While only 5% of the outstanding shares were released to the public on the SPAC, dilution is expected as shares move higher. High-risk tolerant investors and nimble traders that understand the boom bust nature of the hype cycle can look for opportunistic pullback levels to gain exposure.

 QS Opportunistic Pullback Levels

Since QS shares went public on Nov. 27, 2020, using the rifle charts on the daily and 60-minute charts provide the most precise view of the near-term trading landscape. The daily rifle chart is in a make or breaks with the uptrend support at the daily 5-period moving average (MA) at $40.24 and 15-period MA at $28. The 60-minute rifle chart formed a market structure low (MSL) buy trigger above $33.79, which propelled shares higher after breaking through the daily market structure high (MSH) sell trigger at $35.03.  in June 2020. Shares spiked to the $42.22 Fibonacci (fib) level setting up a potential 60-minute mini pup towards the $43.77 fib. This is a run up heading into the Dec. 8, 2020, Company showcase event streaming of its solid-state lithium technology. The preceding rally into the event may produce a sell-the-new effect which traders can look for opportunistic pullback levels at the $34.77 fib, $32.50 fib, $31.11 fib and the $27.69 fib. Be aware this stock is pure speculation and only high risk-tolerant investors should even consider exposure. Potential upside trajectories range from the $47.77 to the $60.75 fib.