Over recent publications, I’ve been generally skeptical about QuantumScape (NYSE:QS). Although the company has groundbreaking potential for its research and development of solid-state batteries (SSBs), putting your money into the mix is another matter. But eventually, even something as disappointing as QS stock may get its day in the sun.
Of course, convincing people to take a shot right now will be an extraordinarily difficult task. When I last wrote about QuantumScape in June, shares were just above $30.50. In the article a month prior to that, shares finished the day at $35.26. As I write these words, the SSB innovator’s shares closed at $21.97, a sizable drop no matter which date from the above you choose.
Plus, it’s tough to avoid immediacy bias in the sense that things could get worse still. Over the trailing six months, QS stock is down 49%. In the last 30 days, the stock shed 13.4%. And in the past week, shares have given up 3.22%. You see a pattern? Seemingly every time someone says the bottom is in, QS proves them wrong.
Naturally, I’m not eager to join in on the fun.
QS Stock Fortunes Ride on Getting SSB Right
While QuantumScape has plenty of supporters and science affording it pleasant vibes, its SSB journey has proven to be an incredibly challenging one. On the surface, the ability to induce far greater energy density in a battery pack would be a paradigm shift for the electric vehicle rollout.
Yes, EVs are making do with current battery tech. But take a look at the offerings from Tesla (NASDAQ:TSLA) and competing vehicles. If you want a “normally” functioning EV — that is, a vehicle that has more than one seat and four wheels — you’ve got to pay serious bucks.
With a U.S. median household income of less than $69,000, EVs need to get cheaper. SSB technology could be the answer.
Difficulties Remain but Sub-$20 Price Is Enticing
So, why hasn’t QS stock gone up on the implications of the underlying business? Likely, the investment community have grown skeptical of the company’s financial performance, along with strong friction on its path toward commercialization.
Now, I’m not going to trash QS stock because QuantumScape is holding back nothing. When you’re attempting to build what could be one of the most transformative inventions of the last few decades, it’s only reasonable to expect setbacks.
However, money changes everything. When you have a situation where stock trading on margin continues to hit record highs, QS may also be a victim of outside circumstances: as people are making money hand over fist — and darn quickly — it’s hard to keep stomaching double-digit losses.
From that perspective, the red ink in QS stock makes sense. Maybe it’s not as terrible as its chart implies. Rather, speculators have moved onto more viable fare. But when the other flavors-of-the-week cool down, will traders return to their first love?
Fundamentally, I’m still skeptical about QuantumScape. It’s not the only player in the SSB game. Moreover, there’s no guarantee that EV adoption will break through in the mainstream.
Then again, if QuantumScape manages to deliver on its promises, that adoption might happen in a hurry. Potentially, the company could foster a new way forward, where EVs are not only practical and environmentally friendly but they’re also cost-effective. In that scenario — which is a fantasy right now — QS stock would be what TSLA is today.
Now, at a ticket price of $132 or so, that’s not something that investors could accept. But something under $20 as my InvestorPlace colleague Will Ashworth wrote about? Yes, I think a lot of people could wrap their heads around that.
A Much Smarter Speculative Bet
I’m not just saying that QS stock is a worthwhile bet now that the circumstances have changed dramatically. Thinking aloud to myself while writing these words, QuantumScape is at a much more attractive valuation, providing upside potential — and that is the operative word here, potential — at a reasonable price.
Still, no investment is without risks. For me, aside from the competitive threat, QS stock faces two headwinds: a race against time and a battle for capacity. In other words, the cost of EV batteries are coming down every year, which means that manufacturers can offer more capacity for less money. Thus, QuantumScape needs to deliver something substantive and something soon.
Otherwise, the natural course of innovation might make its SSB obsolete if the cost-for-performance ratio doesn’t stack up. Actually, that’s always been the risk and investors have been pondering what discount is appropriate to take against QuantumScape’s intrinsic value. At $20 or less, perhaps the price is finally right.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.