The electric vehicle industry is a hotbed of innovation, with companies investing heavily to capitalize on the very strong consumer demand for electric vehicles. With the market size already he’s over $1 trillion and expected to grow at a healthy pace well into 2030 and beyond, the stakes are huge and the payoff for breakthrough technology is huge. There is a possibility.
quantum landscape (QS -6.21%) is one of the hottest companies in the EV space. The company specializes in EV battery technology and hopes to be able to produce more efficient, higher-capacity batteries that represent a major advancement in how automakers design vehicles. Investors aren’t patient with companies that are still far from profitable, and QuantumScape’s shareholders may have to wait a considerable amount of time for the company to generate steady earnings. Earnings From that business, not to mention the profit.
That prompted one major Wall Street company to pull out, and QuantumScape’s stock fell more than 7% early Wednesday as a result. That leaves an obvious question: Should you give up on QuantumScape too?
Goldman unplugs QuantumScape stock
Analyst goldman sachs was the latest to give QuantumScape some tough love when it comes to corporate strategy and outlook. The Wall Street giant cut his view on QuantumScape from neutral to sell and lowered his stock target to $5, making him $3 lower than his previous forecast.
Goldman’s take on QuantumScape was brief and easy to understand. Analysts believe QuantumScape still has a long way to go before it can bring a viable battery product to market. As a result, investors will have to put up with several years of negative earnings and free cash flow as QuantumScape runs out of cash on its ongoing R&D efforts.
While QuantumScape’s business situation is not new, the macroeconomic environment is new and poses an increasing challenge for EV battery developers. That’s why Goldman sees his QuantumScape as underperforming other his EV industry players in terms of profitability and positive free he’s closer to cash flow.
Promising lithium metal technology
QuantumScape’s potential stems from efforts to develop lithium-metal batteries that have potentially significant advantages over current lithium-ion battery technology. Early work shows considerable promise towards achieving the goals of increasing battery energy density while reducing recharge time, light weight and high capacity.
But the question is, will QuantumScape prove to be the winner?Support from German auto giant Volkswagen was a vital source of funding, but rival automakers are backing other companies doing similar research in battery technology. Additionally, QuantumScape has not proven that it can scale production to a sufficient volume to meet demand from Volkswagen and other prospective customers.
The downgrade has pushed QuantumScape’s share price to its lowest level since going public in September 2020 through a merger of special purpose acquisition companies. The stock has lost about two-thirds of its value since early 2022, down 95% since the last time. The highest price immediately after the stock trading opened. For investors willing to wait a few years to see if QuantumScape succeeds, it could make the stock look attractive now. However, for those who want a quicker payoff, selling QuantumScape could favor other EV companies with more direct profit prospects.
Dan Caplinger has no positions in any of the mentioned stocks. The Motley Fool U.S. headquarters invests in and recommends Goldman Sachs Group and Volkswagen Ag. The Motley Fool’s U.S. headquarters has a disclosure policy.