Time to Sound the Alarm on QuantumScape?

QuantumScape (NASDAQ: QS), a developer of solid-state batteries, went public via a merger with a special purpose acquisition company (SPAC) nearly six years ago. It started trading at $24.80 per share, set a record high of $131.67 in late 2020, but now trades at about $5.

Does that steep plunge indicate it's time to give up on QuantumScape? Or does it represent a good buying opportunity for investors who can stomach the near-term volatility?

Image source: Getty Images.

Why did QuantumScape's stock crash?

Before its public debut, QuantumScape claimed it could commercialize its first solid-state batteries by 2024. It also predicted its revenue would soar from $14 million in 2024 to $275 million in 2026. But as of this writing, it hasn't commercialized any of its batteries yet.

QuantumScape's QSE-5 solid-state batteries, which it's been co-developing with Volkswagen (OTC:VWAP.Y) for more than a decade, can charge faster, last longer, and withstand higher temperatures better than conventional lithium-ion batteries for electric vehicles. However, they're also more expensive and difficult to manufacture -- so they've mainly been used for smaller wearables or Internet of Things (IoT) devices rather than EVs.

A major bottleneck for the QSE-5 is the mass production of its ceramic separator, which prevents lithium fibers from short-circuiting the battery. Last year, QuantumScape launched its new Cobra separator process to boost the production of its high-volume samples. However, it doesn't expect any of its battery designs to be ready for full commercialization until 2029.

QuantumScape also abandoned its capital-intensive goal of manufacturing its own batteries in 2024. Instead, it plans to license its technology to Volkswagen's PowerCo subsidiary and other automakers to collect higher-margin licensing and royalty fees.

But without any meaningful revenue, it will continue to rack up steep losses. Its share count has already risen by 47% over the past five years as it raised additional cash through secondary offerings, and that dilution will persist for the foreseeable future. That's probably why its insiders sold over twice as many shares as they bought over the past three months.

Is there any reason to buy QuantumScape today?

With an enterprise value of $2.6 billion, QuantumScape looks overvalued relative to its near-term growth potential. I also wouldn't put too much faith in its new goal of commercializing its first designs by 2029, since it's repeatedly missed its previous commercialization targets.

QuantumScape claims it has enough cash to last through 2029, so it isn't down for the count yet. However, its stock will stay in the penalty box until clearer catalysts appear.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.