What Makes QuantumScape (QS) An Interesting Stock Pick?

QuantumScape (NYSE QS) is an undeniably a story stock that’s being sold to investors. The story is that the company’s production of innovative solid-state batteries will be used by its partner companies like Volkswagon ETR: VOW3 and others due to the battery’s faster charging times and greater energy capacities. Furthermore, QS claims to have developed the industry’s first anode-less batteries, which deliver higher energy density and performance compared to its competitor's batteries. The company is riding on the supercycles of green energy and the transition to electric vehicles, but some investors aren’t so sure.

What the Bears Say

Critics of QuantumSpace’s story point to the fact that it’s a $4 billion dollar company with no revenues, and some analysts have expected that this won’t change until 2026 at the earliest. QS is also not the only horse in the race, as it faces competition in the battery market from manufacturers like Lucid Motors NASDAQ: LCID and Rivian NASDAQ: RIVN. Investors’ dollars in the space are also flowing toward its competitors that are consistently profitable such as BYD Company OTCMTKS: BYDDY as they present a safer option. This is is important as it seems possible that QS will use up its runway in pursuit of its stated goal of producing the world’s best battery, which is an extremely capital-intensive endeavor. A higher share price would help QuantumSpace’s efforts in securing loans if its cash burn catches up to them, otherwise, it would be forced to dilute investors’ value through issuing equity. 

What the Bulls Say

QuantumSpace might be an attractive moonshot for some investors. The stock is currently trading near the very bottom of its 52-week low, and it recently broke below the $20 and $10 psychological support levels. An even cheaper stock price is therefore expected, which could price some people into buying. These prices are a far cry from the company’s post-IPO performance of $114, so believers could start accumulating now while the company is even cheaper.

Then there’s the argument that QuantumSpace’s R&D efforts and marketing are impressive enough to pull some more marquee clients behind it. It should be noted that the company is currently not at the stage of even commercializing its product, as it currently focusing on incorporating improvements to its production tools and design. Proof and the viability of the company’s batteries could sway more EV manufacturers to get on board, which would be protected by the company’s strong moat of IP patents and patent applications. Progress in this area was already reported last earnings call with a deal with a major automotive OEM, making it the company’s fifth customer sampling agreement. Other efforts by the company were also realized in scaling its production as well as testing its 16-layer cell batteries. 

The Bottom Line

The perceived risk-to-reward ratio of this stock, combined with its progress in realizing its resplendent ambition might be a convincing story - provided that the price is right. Given that the broader market is moving into increasingly uneven territory with threats of a looming recession ahead, opportunities to buy stories stocks like QS are likely to be dime a dozen. The current technicals point towards the $8 and $5 buying zones.