After hitting an all-time high of more than $130 per share in the SPAC boom of 2020, solid-stage battery maker QuantumScape (NYSE:QS) has plummeted. Now trading for less than $7 per share, this stock is down more than 94% from its peak. Like many other post-SPAC companies, such a move isn’t uncommon, though QuantumScape’s decline has been more vicious than most. QS stock investors beware.
Throughout this decline, the company’s backers had largely stuck by the company’s side. However, QuantumScape’s key backer Volkswagen (OTCMKTS:VWAGY) may be looking for other partners. This comes as a recent report noted French solid-state battery maker Blue Solutions is in talks with Volkswagen.
The company’s cash burn has already given investors heartburn. However, it appears QuantumScape’s corporate partners are having similar feelings. QuantumScape’s epic cash burn of $354 million in 2023 reduced its cash pile to $1.1 billion. And while this may last the company through 2026, if there’s any sort of pickup in spending, and the company doesn’t meet its production deadlines, investors may continue to grow antsy.
Here’s more on why I think QuantumScape is a stock that’s best avoided right now.
Is Volkswagen Looking For a Replacement?
QuantumScape has yet to bring a commercial solid-state battery to market, despite extensive effort. Ongoing talks about a potential deal between Volkswagon and rival Blue Solutions are also cause for concern.
Blue Solutions produces batteries for Daimler’s electric buses and is developing a solid-state battery that may catch Volkswagen’s eye. The automaker reaffirmed still being “on track” with QuantumScape, but talking with another battery maker may present a challenge.
Volkswagen’s talk with Blue Solutions cast doubts on QuantumScape’s competitiveness. That’s especially true given challenges from solid-state battery technology advancements by rivals Toyota and Nio. Given its absence of revenue and a $2.4 billion enterprise value, investors may still rightly question QuantumScape’s valuation, even after its 94% decline from its peak.
What Could Be the Catalyst for a Surge in QS Stock?
The Reuters report doesn’t necessarily suggest QuantumScape’s Volkswagen partnership is over, but competition and supplier exploration indicate upcoming hurdles. Despite a cash burn runway, uncertainties persist. Until a solid-state battery is produced at a commercial scale, many investors may simply be skeptical of the science behind this project. That’s what has spurred various short-seller reports in the past.
Additionally, QuantumScape’s relatively high research costs should cause investors concern. Despite having over $1 billion in cash, proving the viability of its solid-state batteries is worth its weight in gold. Similar to initial concerns around Tesla’s (NASDAQ:TSLA) stock, scaling up production requires significant investments and may involve risk from debt and equity offerings.
The stock’s performance teeters on the EV battery’s progress, but slow development has led Volkswagen to rethink options and question the initial launch schedule.
QS Stock Remains Very High-Risk
Solid-state battery technology promises faster charging and enhanced safety benefits for electric cars, but has faced delays. QuantumScape’s Volkswagen partnership was set for commercialization in 2018 but had seen continued setbacks.
With uncertainty regarding its commercialization and other automakers already exploring its tech, Volkswagen may be looking at the bigger picture. Investors should monitor developments as Volkswagen potentially drives off to an alternative supplier.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.