Insights

Why QuantumScape Stock Exploded This Week

What happened

Shares of QuantumScape (NYSE: QS) plunged to their 52-week lows in mid-June. The stock of the electric vehicle (EV) battery maker has staged a remarkable recovery since, regaining almost 50% in value. This week turned out to be particularly strong, with the stock up 17.2% at its highest point as of this writing, according to data provided by S&P Global Market Intelligence.

Ironically, QuantumScape’s latest announcement isn’t really encouraging, but investors are clearly focused elsewhere and see promise in the stock.

So what

After releasing its second-quarter numbers on July 29, QuantumScape also filed for a $1 billion mixed-securities shelf offering. Put simply, the company can sell a variety of securities, including common stock, over time to raise that amount of funds. Since any issue of common stock will dilute existing shareholders, that’s the last thing investors want to see from a start-up that’s still years away from commercial production.

To be sure, there’s nothing wrong with tapping funds, especially for a young growth company. But things might have been different had QuantumScape specified it requires money for growth projects. Instead, the company said it intends to use the proceeds for “working capital and other general corporate purposes,” and may use a portion to “acquire, license, or invest in complementary products, technologies, or business.”

As it is, QuantumScape’s operating loss nearly doubled to $186 million during the six months ended June 30. More importantly, although the company is on track to start production of its first battery cells on a pre-pilot line in 2023, it might not be able to start large-scale production in 2025 as previously planned because of multiple challenges, including lack of equipment.

Now what

So why are QuantumScape shares still up this week? After making single-layer, four-layer, and 10-layer cells, the company has now built a 24-layer prototype and put it to test. This development has reinforced investors’ faith in the company’s lithium metal solid-state battery technology, which could be a breakthrough for the EV industry if successful, and they’re willing to bet on the stock regardless of when QuantumScape starts commercial production or generates its first revenue.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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