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Can QuantumScape’s share price motor upwards?

If there were two words to sum up QuantumScape’s [QS] share price performance for the year to date they could be “car crash”.

This article was originally published on Opto – Invest in the Next Big Idea.

Despite being 147% up from its all-time low of $9.74, recorded during trading on 21 August 2020, and reaching the dizzying heights of $132.73 on 22 December, Quantumscape’s share price has performed disastrously since. As of close on 25 May, Quantumscape’s share price was down 71.5% for the year so far.

On the whole, the electric vehicle (EV) and clean energy sectors have taken a beating in recent weeks. The Global X Clean Tech ETF [CTEC], which has allocated 2.28% of its assets to QuantumScape as of 25 May, is down 18.1% for the year to date (through 25 May).

The Invesco WilderHill Clean Energy ETF [PBW], which has given the stock a 0.85% weighting as of 25 May, is down 24% so far this year. The Amplify Lithium & Battery Technology ETF [BATT], with a 0.72% weighting in QuantumScape, has performed marginally better, but is still down 0.1% for the year to 25 May.

Is the recent reversal in QuantumScape’s share price justified?

Insights firm Trefis has argued that the solid-state battery developer is a risky play in the EV and clean energy sectors. In a post on Forbes, the firm put forward the case for the stock having further to fall and provided three reasons why. Firstly, it pointed to QuantumScape’s plan to raise $859m via a stock sale; secondly, its lack of transparency regarding its technology; thirdly, the company was recently targeted by a short seller.

On the first point, the company has issued a share offering to fund a pilot production line to make more prototype solid-state cells for its long-time partner, Volkswagen [VOWG]. With regard to the second point, the developmental nature of solid-state batteries means that the companies innovating in the space, including Toyota [TM], are reluctant to talk about their technology. Being secretive means not giving away trade secrets.

Finally, being secretive has made the company an easier target. Scorpion Capital’s short report featured quotes from former employees and questioned QuantumScape’s battery performance. The stock fell circa 12% in intraday trading on 15 April, the day the investigation was published. Quantumscape has since rebuked the report and Jagdeep Singh, CEO of QuantumScape (pictured), has considered legal action.

Some analysts, including Adam Jonas of Morgan Stanley, believe that the negative impact of the report has already been factored into the stock’s current price.

“The double-edged sword of technological disclosure is that it opens up a company to a wide range of scrutiny. There may be no better way to learn about a company than to hear them defend themselves in the face of serious scrutiny. We are big believers that it’s more important for the facts to drive the narrative than for the narrative to shape the facts. There are surely more questions left to answer,” Jonas wrote in a note to clients seen bySeeking Alpha.

Plenty of upside

QuantumScape’s batteries promise to extend EV range while reducing charge time. This claim is currently only backed by preliminary data.

Assuming the firm can support its claims and respond to unanswered questions with more data in the near future, there could be plenty of upside for QuantumScape’s share price.

In March, Gabe Daoud, an analyst at Cowen, initiated coverage with an outperform rating and a price target of $57, which implies a 136.9% rise from its current level.

Writing in a note to clients seen by The Fly in March, Daoud appeared to take a long-term thematic view that the ongoing electrification of mobility will drive “robust” lithium-ion battery demand through 2030. He added that QuantumScape’s battery technology “shows game-changing potential”.

The challenge for QuantumScape is taking its solid-state battery from early-stage technology to being able to supply carmakers. Though the plan is to start producing batteries for Volkswagen from 2024, as Bloomberg suggests, they’re unlikely to be on the road until 2026.

Any delays to this timeline — or further takedowns of its technology — could test investors’ patience.