Beware This Battery Stock: Why QuantumScape’s Latest Moves Demand Investor Caution

Stocks to sell

After QuantumScape (NYSE:QS) pulled back the veil on its Q4 earnings, shares saw a 5% dip in after-hours trade on Valentine’s February 14. It showed the face of its 2024 objectives while making a slightly better-than-expected loss per share of 23 cents. It didn’t bring in as much money as expected. Read this QS stock analysis to discover where it’s headed next.

QuuantumScape CEO Jagdeep Singh assured shareholders with a pat on the back, in the form of battery efficiency progress and aims for low-volume QSE-5 production. Even though there was competition and lithium price drops. Capital expenditure and adjusted EBITDA projections stay afloat with consistency.

Just How Quickly Can QuantumScape Scale Up?

There are certainly reasons to be bullish about QuantumScape and the solid-state battery market in general. I’ve always touted the benefits of such breakthrough technologies in previous articles on the company. But it’s also important to point out that with great upside potential comes great uncertainty, and we’re at a certain inflection point when it comes to QuantumScape right now.

Just what inflection point may that be, you might ask?

Well, QuantumScape is reportedly just quarters away from proving it can scale some small-scale designs in labs to larger-scale mass production. And the company better hurry, as competitors eye similar offerings, with Volkswagen (OTCMKTS:VWAGY), a key QuantumScape backer, now presented with options.

Thus, the question around QuantumScape is increasingly how quickly the company can come to market, and turn its cash burn profile into one of profitability. I think the jury remains out on this front, which is a key reason why certain investors (myself included) simply don’t want to play this waiting game. It’s just too risky to pick a winner in a nascent sector without a company that’s got a clear manufacturing advantage. We just don’t know who’s going to have a leg up in this race, and when the firing gun will go off. I don’t like those dynamics. This is a key part of this QS stock analysis.

Executive Shuffle

On February 15, 2024, Dr. Siva Sivaram was dubbed CEO and board member of QuantumScape Corporation, taking over from Jagdeep Singh, who continues to serve as Chairman. Experienced semiconductor specialist Dr. Sivara, came in September 2023, bringing with him a treasure chest of industry knowledge that included a position at Western Digital Corp.

Under his direction, QuantumScape informed the world of QSE-5, its first commercial product and stepped on important milestones. The goal of Singh’s succession planning was to choose a leader for the company’s growth phase who was experienced in producing high-tech items.

Mr. Singh expressed pride in founding QuantumScape and praised Dr. Sivaram’s operational expertise and strategic vision. Sivaram was deemed the ideal leader for scaling production.

This move may be welcomed by many investors who are looking for signs the company is willing to do what it takes to accelerate its core business. However, time will tell whether this move will prove to be a positive or negative.

Steer Away Until There’s More Certainty

Although QuantumScape has potential, investors should invest with caution, in my view. The company’s $350 million cash burn may be considered reasonable, given the company’s efforts to ramp up production. And given QuantumScape’s $1 billion cash pile, there’s still at least two years of runway left to get to commercial scale. That should be enough time, right?

I have no idea. The science behind these batteries is very difficult to understand, and I’m just not enough of an expert to know whether QuantumScape or a startup in an emerging market, will win this race. In my view, QS stock is simply too risky to buy at current levels, even considering its market decline. Thus, I’m taking a buyer-beware approach to this stock, at least for now. This concludes my QS stock analysis.

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.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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