Is it too late to buy QuantumScape shares?

QuantumScape (NYSE: QS) the stock is up 6% over the past six months, but is down 34% from its peak during that period. This is a volatile stock, to put it mildly, noting that shares are down about 95% from their all-time highs reached in late 2020. Is it too late to invest in QuantumScape? Probably not. But this is not an investment for the faint of heart.

What does QuantumScape do?

A cynic would say that QuantumScape’s business is to spend money. That’s because, right now, it’s not generating any income. Basically, the company is trying to build a solid-state lithium-metal battery that it can sell to customers. The key target at the moment is the electric vehicle (EV) niche of the automotive sector. But management hopes to spread beyond that in the future.

The only problem is that it doesn’t actually have a technology for sale yet. It is still in development. That’s why research and development (R&D) is the first item you’ll see on a company’s income statement. It’s also a huge cost, totaling $97.7 million in the second quarter of 2024. Without revenue, that’s a big nut to crack every quarter.

That’s why it’s so important that QuantumScape has $196 million in cash and $741 million in marketable securities on its balance sheet. That gives the company some breathing room to keep spending, but when you’re burning through nearly $100 million a quarter on research and development, even $900 million doesn’t provide that much of a runway. And given how far QuantumScape stock has fallen from its all-time highs, it’s not too late to buy. In fact, it might still be too early to buy.

QuantumScape adjusts its Volkswagen partnership

One of the big selling points for QuantumScape as it pitches its stock to investors is a partnership with Volkswagen. It’s not exclusive, so QuantumScape is free to sell its technology to other companies, but still provides a valuable partner on the manufacturing front and a potential long-term customer. That’s great news, but there’s no product yet.

With the cash drain in mind, QuantumScape and Volkswagen recently reworked their partnership. There are small details here, but the big story is that the new deal will extend the company’s cash runway through 2028, extending the company’s previous guidance by 18 months. From a glass-half-full perspective, this sounds great, as there is more time to develop the QuantumScape solid-state lithium-metal battery.

From a glass-half-empty perspective, however, the company is warning investors that it will run out of money in 2028. If it doesn’t have a product to sell by then, or if it doesn’t find another way to raise cash, QuantumScape could be in big trouble financial. No wonder the stock has fallen so far from its all-time highs. Investors buying the stock are essentially making a bet that the company can develop and commercialize new battery technology and sell it in the fast-evolving EV space. That’s a tall order.

The story continues

Progress is being made, but most investors should watch from the sidelines

QuantumScape seems to be advancing its technology, so it’s not like management is just throwing money away. However, the company doesn’t have a product yet and is likely to continue losing money for at least a few more years. Sure, the story here is interesting, but a lot has to go right for this to be a worthwhile investment. Most investors should probably wait for QuantumScape to reach several development milestones before investing. At this point, this is a stock that is only suitable for aggressive investors. Even then, though, it looks like there’s still plenty of time to watch and learn before actually buying the stock.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Volkswagen. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.

Is it too late to buy QuantumScape shares? was originally published by The Motley Fool