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Is It Too Late to Buy QuantumScape Stock?

Motley Fool - Sun Sep 22, 4:06AM CDT

QuantumScape(NYSE: QS) stock is up 6% over the past six months, but down 34% from its high-water mark over that span. This is a volatile stock, to put it mildly, noting that the shares have fallen around 95% from their all-time highs, reached in late 2020. Is it too late to invest in QuantumScape? Probably not. But this is not an investment for the faint of heart.

What does QuantumScape do?

A cynic would say that QuantumScape's business is to spend money. That's because, at this point in time, it doesn't generate any revenue. Basically, the company is trying to build a solid-state lithium-metal battery that it can sell to customers. The key target right now is the electric vehicle (EV) niche of the automobile sector. But management hopes to spread beyond that in the future.

A person charging an electric vehicle.

Image source: Getty Images.

The only problem is that it doesn't actually have a technology to sell just yet. It is still in development. That's why research and development (R&D) is the first item you'll see on the company's income statement. It is a huge cost, too, totaling $97.7 million in the second quarter of 2024. With no revenue, that's a big nut to crack every quarter.

That's why it is so important that QuantumScape has $196 million in cash and $741 million in marketable securities on its balance sheet. That gives the company some breathing room to keep spending, but when you are burning through nearly $100 million per quarter on R&D, even $900 million doesn't provide that long of a runway. And given how far QuantumScape stock has fallen from its all-time highs, you aren't too late to buy. In fact, it might still be too early to buy.

QuantumScape adjusts its Volkswagen partnership

One of the big selling points for QuantumScape as it pitches its stock to investors is a partnership with Volkswagen. It is not exclusive, so QuantumScape is free to sell its technology to other companies, but it still provides a valuable partner on the production front and a potential long-term customer. That's great news, but there's still no product.

Given the cash burn, QuantumScape and Volkswagen recently reworked their partnership. There are small details here, but the big story is that the new agreement will lengthen the company's cash runway into 2028, extending the company's previous guidance by 18 months. From a glass-half-full perspective, that sounds really good, since there's more time to develop QuantumScape's solid-state lithium-metal battery.

From a glass-half-empty perspective, however, the company is warning investors that it will run out of money in 2028. If it doesn't have a product to sell by that point, or find another way to raise cash, QuantumScape could be in big financial trouble. It's little wonder that the stock has fallen so far from its all-time highs. Investors who buy the stock are basically making a bet that the company can develop and commercialize a novel battery technology and sell it into the fast-evolving EV space. That's a tall order.

Making progress, but most investors should watch from the sidelines

QuantumScape appears to be progressing its technology, so it isn't like management is just throwing money away. Still, the company doesn't yet have a product and is likely to continue to lose money for at least several more years. Sure, the story here is exciting, but a lot of things have to go right for this to be a worthwhile investment. Most investors should probably wait for QuantumScape to hit a few more development milestones before investing. Right now, this is a stock that is only appropriate for aggressive investors. Even then, however, it looks like there's still plenty of time to watch and learn before you actually buy the stock.

Should you invest $1,000 in QuantumScape right now?

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Volkswagen. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.