Where will QuantumScape stock be in 10 years?

something to do Quantumscape (QS -3.81%) Will stocks take a quantum leap forward over the next decade? Anything is possible on Wall Street, but prospective investors should consider QuantumScape’s financial woes alongside the company’s efforts to transform the electric vehicle (EV) battery landscape.

This is a noble goal, but questions remain about QuantumScape’s ability to achieve it. Like a battery that needs recharging, QuantumScape could run out of capital in the coming years. This could lead to a capital raising exercise, which could come as quite a surprise to QuantumScape’s current shareholders.

Big dreams, few updates

In December 2022, QuantumScape delivered its first 24-layer prototype battery cell to an automotive company for testing. This was a groundbreaking moment for QuantumScape. At the time, it felt like the company was making real progress toward commercializing its product.

QuantumScape stock was trading at about $7 per share at the time of the announcement. Fast forward to the end of 2023 and the stock price remained at the same price level. There was little compensation for all the volatility along the way. Make no mistake. QuantumScape stock is quite volatile, with a 5-year monthly beta of 5. That said, stocks have historically tended to move 5x faster. by S&P 500).

In other words, QuantumScape was great for short-term traders but disappointing for long-term investors. Keep in mind that QuantumScape should have a strong performance in 2023 as the stock market soars and U.S. electric vehicle sales rise 50% from 2022 levels.

Looking back at QuantumScape’s press releases page, we see that updates to the company’s operations have been infrequent, consisting primarily of quarterly shareholder letters. In its most recent quarterly shareholder letter, QuantumScape provided some follow-up on prototype battery cells shipped to potential customers.

One key takeaway is that one of the prototype cells “achieved more than 1,000 full cycle equivalents with more than 95% discharge energy retention.” Another point is that QuantumScape seeks to “improve cell packaging efficiency” for prototype cells.

Beware of cash runways

What you won’t find in QuantumScape’s aforementioned shareholder letter is any extensive discussion of the company’s earnings. This is because as of September 30, 2023, QuantumScape “has not generated revenue from its principal business activities.” This is information hidden in QuantumScape’s Form 10-Q file.

This isn’t the only financial red flag in QuantumScape’s quarterly report. As it turns out, the company posted a net loss of $331.7 million for the nine months ended September 30, 2023, after suffering a net loss of $302.8 million earlier in the comparable year.

QuantumScape executives predict that the company’s “cash runway will extend into 2026.” It would be more comforting if QuantumScape had provided ballpark figures for overall product commercialization, but the company’s shareholder letter doesn’t do that.

Some analysts worry the company may have to turn to raising capital. This is a legitimate concern, as QuantumScape already put 37.5 million shares up for sale in August. If the company demonstrates a willingness to expose current shareholders to dilution risk, it’s not inconceivable that the company will resort to this capital-raising strategy again in the future.

So QuantumScape stock could easily become a 10x stock or literally a penny stock in 10 years. The next few years will determine the success or failure of QuantumScape. Investors will have a clearer picture of how much the company’s cash runway actually extends, and whether additional stock-diluting activities will be needed to keep that runway intact.

The best-case scenario is one in which QuantumScape provides a minimal timeline for full product commercialization, revenue realization, and ultimately profitability. But for now, that was put off as a dream.

Until the company proves that its EV battery cell technology not only pushes the envelope technologically, but is also financially viable, be prepared to turn your invested dollars into pennies with the illusion of QuantumScape stock soaring to triple digits. It’s okay to do it.