In past coverage of QuantumScape (NYSE:QS), I have laid out the bear case for QS stock. Here it is in a nutshell: QS will continue to drop in price, for one of two reasons.
Either the electric vehicle battery technology company won’t move from developing solid state batteries for EVs, to producing them on a mass scale, or it will achieve this, but other factors will inhibit share price appreciation.
That said, while I’m skeptical about the bull case for QS, I will admit that market-related factors in theory could help provide a path to higher prices for shares.
However, while some may believe that renewed enthusiasm for the stock, whether for stock-specific reasons, or because of the market’s overall direction, is possible, other factors call into question the likelihood of this scenario playing out. Here’s what I mean.
QS Stock and its Questionable ‘Story’
Given QuantumScape’s tendency to only reveal recent developments at or around when it releases quarterly results, chances are there will be little-to-no exciting news out of the company in the immediate term.
It may not be until the next earnings report that there’s any sort of needle-moving news for QS stock. The next earnings report should drop in late October.
Yet while to some this may sound like an invitation to buy, keep in mind the many hurdles/challenges this company has had to face/is likely to keep facing.
It remains unclear whether QuantumScape’s technology is scalable. There’s also high uncertainty whether other automakers besides strategic partner Volkswagen (OTCMKTS:VWAGY) will end up using QS’s SSBs in their EVs.
As discussed in my last QS article, there are many early-stage and established battery makers eyeing this market.
Even if the company moves into the revenue stage, that doesn’t guarantee a comeback for the stock. Much like with upstarts in the EV manufacturing space, the company could scale up, but continue struggling to hit profitability.
To raise the capital required to reach the production stage, the company may have to dilute existing shareholders, affecting future returns.
Why You Can’t Count on Mr. Market
Again, it is within the realm of possibility that QS stock receives yet another temporary boost, from factors unrelated to its fundamentals. One such factor discussed often is the stock’s potential to experience a short-squeeze.
In addition, if stocks (particularly growth stocks) rally upon increased confidence that macro challenges such as high inflation and high interest rates are finally on the way out, this too could be possibly something that enables QuantumScape shares to rally again.
Then again, maybe not. As I argued last week, QS’s squeeze appeal may be overblown. Mostly, because short interest has declined in recent months.
As for the stock joining in on the fun of a post-slowdown rally, while such a rally will undoubtedly happen down the road, another round of market volatility could preced it.
Sure,”doom and gloom” market bears have been proven wrong many times so far in 2023. Still, recent portfolio moves by Warren Buffett and Michael Burry may give credence to the fear, uncertainty, and doubt crowd’s less optimistic near-term take on the market.
Stocks like QS could spike in a rebound, but experience outsized declines if there’s another broad market sell-off.
Until further developments arise, it is very uncertain whether this company will bring game-changing EV battery technology to market, much less use this technology to turn itself into a dominant player in this space.
To make matters worse, it’s not only the fundamentals-based bull case for QuantumScape being built on shaky ground. A short-squeeze appears unlikely, and the stock market may be more likely to sink than surge in the near-term.
In short, there’s only one takeaway here. There’s a slight chance shares merely tread water from here, and an increasing chance that the stock re-tests its lows ($5.11 per share), or worse, hits new lows, over the next few months.
Any way you slice it, the odds are against QS stock right now. Staying away continues to be your best move.
On the date of publication, Thomas Niel did not hold (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.