QS Warning: Why Cash-Burning QuantumScape Is a Stock to Sell

Stocks to sell

January has been a bit of a jumpstart for solid-state battery stock QuantumScape (NYSE:QS). The company, known for its batteries that can be charged 1000x without degradation, has short-term potential as a way for investors to ride rallies. But the long-term picture for QS stock appears to be blurry, and investors should this factor before betting any significant sum on this stock.

In my January 8 article about QuantumScape, I expressed my rather bearish view of the stock because of two things: no regular updates from the company and a need for capital raise.

My stance is still the same. I think investors should see these risks as prevalent for QS stock. While it’s true that QuantumScape has potential in terms of its future battery cell production, caution is still highly advised since the company is still unprofitable and is burning cash at a significant pace.

Recent QS News

As of January 10, QS stock is 3% below its moving average, but the company has laid out a roadmap on how it can rebound and achieve an upward trend. 

Long-awaited by many of its investors, QuantumScape finally gave an update on its electrical vehicle (EV) battery advancements. The company uploaded a video on its YouTube channel detailing the EV. 

The video also highlighted some features of its FlexFrame battery development. Insights from experts like Daniel Braithwaite, Chris Dekmezian, and Venkat Viswanathan, also dived in and explained the battery’s innovative design.

According to Electrek, this battery was described as “a unique solution for lithium batteries” since it boasts flexibility similar to a beating human heart. Braithwaite also emphasized how the FlexFrame is capable of addressing certain battery production challenges through tailored battery categories for lithium metal batteries that have unique behaviors. 

While it gained only neutral reactions, the update was somehow an assurance for investors that the company was doing something about its issues. QuantumScape remains a top option for investors seeking espouse to a pioneering EV battery technology provider. Indeed, we all need a brighter and more scalable future for EV production. However, the timeline of when we’ll get there, and what QuantumScape will actually produce, remains uncertain.

What Now

QuantumScape is still navigating through what works and what doesn’t for the company. For now, it’s still focusing more on a lot of testing, production preparations, manufacturing, and research and development. In 2023, the company had a high cash burn rate, with about $354 million spent on production and development. 

Currently, QuantumScape has around $1.1 billion in cash, and can still operate until 2026. Although development is ongoing, risks and uncertainty still remain for this battery producer, especially now that it’s facing some financial obstacles.

That said, predicting future investment movement and gains can be challenging for QS stock. Who knows, this could be one of the big leaders in the next rally.

But the reality remains that there are plenty of other highly speculative stocks to bet on with a brighter future and more stable financials. If stability and capital preservation are of any concern, this is a stock that’s probably best avoided.

On the date of publication, Chris MacDonald 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.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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