QuantumScape Stock Keeps Beating the Stock Market. Time to Buy?

Electric vehicles have been going mainstream for a decade, but outside of China, they don't seem to be catching on as quickly as some had expected them to. While EVs accounted for half of China's vehicle sales in 2024, EV sales dropped in Europe, and their sales growth rate slowed markedly in the U.S. Globally, EVs only make up 4% of the total passenger car fleet, according to research from the International Energy Agency.

One of the biggest challenges in terms of getting car buyers to consider EVs relates to their batteries: Drivers are always seeking better range, faster charging, and lower costs. Meanwhile, automotive makers are also trying to reduce costs and make EVs more efficient. QuantumScape (NYSE: QS) may have a solution to all of these problems: Its next-generation solid-state batteries are expected to offer big improvements over the lithium-ion batteries now being used, and their better performance may in turn give a boost to EV sales.

While QuantumScape isn't turning a profit yet, its tech has shown enough promise to win it some key contracts. And the stock is up more than 200% so far this year, by far outperforming the S&P 500.

Should QuantumScape be on your buy list now? Or is the stock too hot to touch after its 2025 rally?

Image source: Getty Images.

QuantumScape and its contracts

California-based QuantumScape is a maker of electric vehicle batteries, but with a twist. It uses solid ceramic separators instead of polymers in its battery cells, which allows it to utilize pure lithium-metal anodes rather than carbon or silicon anodes.

Those differences from legacy technology result in batteries with higher energy densities, faster charging, and longer lifespans. And when installed in EVs, that will mean cars with increased ranges and less recharging hassle.

The stock made a giant move up this summer when the company announced in late June that it had successfully integrated its Cobra separator process into baseline cell production for its batteries. The company said the Cobra process is 25 times faster than its previous production process. That announcement sent QuantumScape stock up 200% in just a month.

The shares have had other tailwinds this year as well. QuantumScape has a long-standing relationship with giant German automaker Volkswagen, which made its first investment in the company back in 2012. Then in 2018, they formed a joint venture to develop solid-state battery technology for mass production.

In July, the companies made another announcement: QuantumScape expanded its partnership with Volkswagen's battery subsidiary, PowerCo, to accelerate the QSE-5 battery development pilot line. PowerCo will invest up to $131 million over and above the $130 million that had previously been committed so that it will be able to begin QSE-5 production and automation work.

Coupled with the Cobra production improvement, that deal seemed to portend a significant step toward QuantumScape mass-producing solid-state EV batteries.

Then on Sept. 30, QuantumScape made another big announcement, disclosing a deal with ceramic and glassmaker Corning to create a ceramic separator manufacturing process for its solid-state batteries. The goal, according to the companies, is high-volume production of ceramic separators for commercial use. News of that deal sent QuantumScape stock up another 23%.

So, the stock has been experiencing serious momentum. But can it last?

A look at QuantumScape stock

QuantumScape is a pre-revenue company, but it's not operating in an unreasonable way. Its cash burn hasn't spiraled out of control. It posted a net loss of $229.1 million in the second quarter, which was a slight improvement from its loss of $243.6 million a year ago. The loss per share was $0.20, better than the $0.25 per share it lost in the second quarter of 2024.

However, QuantumScape still has a decent cash position of $190.5 million, which is down from $214.4 million from a year ago. Between that cash and the company's other available and incoming funds, management said that it believes it will have enough cash resources to keep operating into 2029, so there are no significant impediments that would prevent it from continuing to develop and commercialize its technology.

But there is one significant red flag for investors: The stock now has short interest of 51%. In other words, just over half of QuantumScape's outstanding shares are being bet against it being successful. Any company with more than 30% short interest runs the risk of becoming a meme stock.

QS Short Interest data by YCharts.

Is QuantumScape a buy now?

You can look at this as both an opportunity and a huge risk. If QuantumScape can show progress with its Corning and Volkswagen partnerships, gain some momentum, and, ideally, add another partner or two, then this stock will take off.

But investors need to be careful, because that massive short interest will magnify the hills and valleys the stock moves through in response to positive and negative headlines. Any delays en route to commercializing its batteries could be devastating to QuantumScape stock -- its 2025 gains could rapidly vanish.

If you're going to climb aboard this train, I'd recommend taking only a small position. But based on my personal risk tolerance, QuantumScape is a pass.

Patrick Sanders has no position in any of the stocks mentioned. The Motley Fool recommends Corning and Volkswagen Ag. The Motley Fool has a disclosure policy.