Is QuantumScape a Lost Cause?

When QuantumScape (NASDAQ: QS) went public nearly six years ago, the bullish buzz was understandably palpable. Its solid-state lithium battery technology was just the forward leap the electric vehicle (EV) industry was seeking, giving these cars the driving range between recharges they needed.

Shares soared shortly after this company's initial public offering. Ever since its late-2020 peak, however, the stock price has dwindled downward. Its best shot at a reversal came late last year, but the stock has since fallen more than 70% from that peak and is now back within sight of last year's record low.

It's time to admit it. This company isn't going to do what so many investors were hoping it would.

Too slow

The idea is savvy enough. While standard liquid lithium batteries are proven, in an electric vehicle where every watt-per-pound matters, any possible improvement in energy-storage efficiency is worth making. To this end, QuantumScape's solid-state solution added on the order of 20% to 25% more EV driving range for charge -- a significant boost that just might make electric vehicles marketable to range-worried consumers. That's why Volkswagen become a developmental partner and a major stakeholder even back before the company's 2020 initial public offering.

So what went wrong? In simplest terms, QuantumScape was just taking too long to get its technology ready for mass commercialization, opening the door to bigger and better-funded competitors like China's BYD, Toyota Motor, and Nissan Motor to beat it to the market.

Indeed, BYD expects to see its in-house-designed solid-state lithium batteries installed in some of its vehicles by 2027, with large-scale production and usage projected by 2030. Given that it's now the world's leading electric vehicle manufacturer (as measured by unit sales) and is also supplying other EV makers -- including Tesla -- with lithium batteries and related tech, it's a stark indication of how QuantumScape is falling behind, with its commercialization not likely until at least 2029.

Image source: Getty Images.

The kicker: Although at one point Volkswagen was expecting to eventually become world's leading EV maker, it's since been lapped by both Tesla and BYD. Earlier this month, in fact, the company postponed a $7 billion investment in an EV battery plant located in Ontario, Canada. Production that was supposed to begin next year now won't start until 2029.

While the impact this decision may have on QuantumScape isn't yet entirely clear, given the two companies' close developmental relationship, it's a concern for QS shareholders simply because it gives competitors another two years to refine their tech and forge or deepen their existing supply relationships.

Still bleeding money (on the order of $100 million per quarter now) with only about $900 million in the bank, it's not clear how QuantumScape is going to ramp-up production capacity, or even simply survive without some sort of significant help; raising new funds may not be easy at this point, given the current backdrop.

Not worth the risk

Never say never. QuantumScape may well navigate its way out of this challenge.

Just don't ignore everything that's happening within and around the EV battery business, much of which is leaving this company at a growing competitive disadvantage. It brings too much risk to the table for most investors, and certainly not high-enough odds of any real reward.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends BYD Company. The Motley Fool has a disclosure policy.