QS Stock Sell Alert: 3 Reasons to Give the Solid-State Battery Company the Boot

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QuantumScape (NYSE:QS) stock has had a long ride don. Though it promised safer, faster-charging, and longer-lasting solid-state batteries. It hasn’t delivered. Unfortunately, there many reasons investors should dump this battery stock and look elsewhere for yield.

The lithium battery market is crucial for smartphones, laptops, and the electric vehicle industry. Lithium batteries provide the power and performance that EVs need to compete with conventional cars. According to Grand View Research, the global lithium battery market size is expected to reach $182.5 billion in value by 2030 at a compound annual growth rate of 18.9% from 2021 to 2030.

QS Stock Still Has No Product

Founded over a decade ago, QuantumScape has claimed to have developed a breakthrough solid-state battery technology that could revolutionize the EV industry.

QuantumScape management discussed key innovations. in it’s Q3 earnings report. The company shipped A0 prototype cells to prospective customers to demonstrate a 24-layer anode-free solid-state lithium-metal battery cell. QuantumScape claims these battery cells have achieved industry-beating performance.

However, the company still has some ways to go in order to prove the efficacy of its technology in the real world. Investors need to become comfortable with how long they will have to wait before real free cash-flow is generated.

The EV Is Slowing

Last week, Tesla (NASDAQ:TSLA) reported their Q4 earnings and investors were not happy. Not only did the famed automaker miss Wall Street’s earnings estimates and warned of weaker growth to come in 2024.

Some of this weak growth stems from consumer demand, but it also stems from an increasingly competitive market environment.

Slowing demand from consumers would imply a small market for QuantumScape’s potential product. However, competition from Chinese EV makers doesn’t guarantee market growth for QuantumScape. Chinese EVs get their batteries from various channels. Large electric vehicle makers, such as BYD, design and manufacture their own batteries.

In order to tackle the market, QuantumScape will need an effective go-to-market strategy. Otherwise, the company seriously risks falling into obscurity.

Eduity Dilution Concerns

Last August, QuantumScape made an announcement regarding a $300 million equity offering. The company’s equity offering, naturally, made investors uneasy as this kind of transaction could dilute previous shareholders.

The reason why the company sought capital from the equities markets make sense if you glance at its financial statements. QuantumScape is still pre-revenue and has consequently eaten away at the 1.5 billion cash balance the company amassed in 2021.

As of their most recent 10Q filing, QuantumScape still had over $1 billion of cash and marketable securities.

Unfortunately, as the company continues to operate without a commercial product, its cash balance will continue to deplete unless it seeks more equity capital. This could ultimately lead to further dilution for shareholders.

On the date of publication, Tyrik Torres 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.

Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.

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