Electric vehicle (EV) battery technology company QuantumScape (NYSE:QS) does certain things well. However, making money isn’t one of those things. The company also isn’t good at providing value to its shareholders, as QS stock hasn’t been a winner lately. Frankly, investors should look elsewhere as QuantumScape has financial issues that can’t be ignored.
QuantumScape rarely updates its press releases page. There were no updates to be found there in November. In October, there was an announcement of the timing of QuantumScape’s third-quarter earnings report and, finally, the release of that report.
In the quarterly shareholder letter, QuantumScape provided a lot of scientific lingo about the company’s 24-layer EV battery cell technology. However, I recommend reading not only the company’s quarterly shareholder letter, but also QuantumScape’s Form 10-Q. That way, you’ll get a more complete picture of QuantumScape’s financial situation, which is less than ideal.
A More Cautious Market Doesn’t Support QS Stock Anymore
QuantumScape’s shareholder letter is replete with facts and statistics about energy density, cell packaging, cathode loading and so on. But then, the company’s previous shareholder letters also had an abundance of impressive-sounding scientific jargon.
On the other hand, don’t bother poring over QuantumScape’s shareholder letter if you’re looking for evidence that the company has revenue or earnings. You also won’t find a specific timeline for QuantumScape to post its first revenue or income.
Moving over to QuantumScape’s Form 10-Q, you’ll get more details on certain topics that the company would probably prefer not to emphasize. For example, QuantumScape admits that its planned “principal operations have not yet commenced.” Furthermore, the company acknowledges that, as of Sept. 30, QuantumScape “had not derived revenue from its principal business activities.”
Now, it’s becoming clear why QS has dropped so sharply since early August. Interesting scientific discoveries aren’t enough, by themselves, to sustain a business in 2023. Interest rates are high, the economy is fragile and the stock market doesn’t support consistently unprofitable businesses like it did in 2021.
QuantumScape Sells Millions of Shares
QuantumScape proudly claimed in its Form 10-Q that the company’s “cash resources will last into 2026.” The company also mentioned this twice in QuantumScape’s quarterly shareholder letter.
Yet, it’s reasonable to wonder how a pre-revenue business supposedly secured enough cash resources to last for the next several years. The answer is simple: QuantumScape printed up and sold a very large number of common stock shares. Here are some notable events:
- In July 2022, QuantumScape filed a shelf registration statement with the Securities and Exchange Commission (SEC) to offer and sell common stock, preferred stock, debt securities, warrants and other assets for “an aggregate offering price of up to $1 billion.”
- In February 2023, QuantumScape filed a prospectus supplement to the Form S-3 for the issuance and sale of “up to $400 million” worth of common stock.
- In August 2023, QuantumScape completed an underwritten public offering of common stock and issued 37.5 million shares.
Furthermore, QuantumScape acknowledged that, to the “extent that our current resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing.” In other words, don’t be too surprised if QuantumScape sells more shares.
Clearly, there’s a concern here for QS stock owners, as they undoubtedly wouldn’t want QuantumScape to further dilute the value of the currently outstanding shares. Yet, that’s what issuing and selling more shares could do.
Expect QS Stock to Sink Further Into the Abyss
It’s not enough for QuantumScape to tout its EV battery cell science in one shareholder letter after another. QuantumScape really needs to publish a specific time frame, action plan and estimated dollar figures for expected revenue and income.
If you’re still considering investing in QuantumScape, at least read the company’s Form 10-Q and look for the red flags. Then, hopefully you’ll choose not to buy QS stock.
To be completely frank, I fully expect the stock to move relentlessly lower in the coming months. So, pay attention to QuantumScape’s financials and not just the company’s scientific advancements. Otherwise, you might end up making a money-losing investment in a money-losing company.
On the date of publication, David Moadel 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.