QuantumScape Stock: Buy, Sell, or Hold?

You may have heard of QuantumScape (NYSE: QS). It's a California-based start-up working to develop and commercialize an electric vehicle (EV) battery that would be a significant step forward in safety and performance from existing alternatives.

Researchers have been tinkering with "solid state" battery technology since the 1960s, but it has proven very difficult to make a solid state battery that will last more than a few cycles. QuantumScape may have solved the puzzle with an innovative ceramic "separator" that -- in theory and so far in testing -- ensures long battery life.

The company went public with great fanfare in late 2020, but the stock is down over 95% from its early peak and has fallen about 27% in 2024. Looking at it today, is QuantumScape stock a buy, hold, or sell?

Is there a case for selling QuantumScape stock?

There can be good reasons to sell any stock, no matter what's happening to the business or in the wider market. For instance, you might need the cash, want to rebalance your portfolio, or the investment thesis -- the reason you bought the stock in the first place -- might have changed.

QS data by YCharts.

QuantumScape's stock hasn't performed well, but the investment thesis hasn't changed recently. The company has always been something of a moonshot, a start-up attempting to develop and commercialize a new technology (solid state electric vehicle batteries) with a big potential market.

But battery technology is nothing like software development -- it moves very slowly. If you own QuantumScape stock, you probably bought it knowing that it would take several years for the company to prove its technology and bring its batteries to market.

So far, that's how it has played out. There are no red "sell" alerts flashing.

The case for holding QuantumScape stock

The questions around QuantumScape stock have always been these:

• Will QuantumScape's key technology -- an innovative battery separator -- pan out?
• Will the company run out of cash before it can get its batteries to market?

The answer to the first question has always been, "We'll see." But the company is making significant progress and on track with its guidance. Most recently, it began shipping "B-samples" -- full-sized, functional prototypes of its EV battery -- in small quantities to automakers for testing.

The B-samples are real-deal batteries but thought of as prototypes because they aren't yet being made on a full-scale production line. The ability to mass-produce these batteries in a cost-effective way is an important part of what QuantumScape has been working to develop. It expects to make significant progress on that front in 2025.

Image source: Getty Images.

As for cash, that won't be a concern for a while. QuantumScape said at the end of the third quarter that it has enough cash to fund its operations into 2028. Its cash hoard expanded earlier this year when it completed a licensing deal with Volkswagen (OTC: VWAGY). Under that deal, the automaker will prepare to manufacture QuantumScape's batteries at scale -- at first for itself, and then later for other customers. (Note: Volkswagen owns about 17% of QuantumScape.)

Long story short: QuantumScape is making steady progress and staying close to the timeline it sketched out when it went public in 2020. If you're holding the stock, it seems worth continuing to hold.

The case for buying QuantumScape stock

Here's the bull case in a nutshell.

• QuantumScape is developing a new type of EV battery that promises to be lighter, safer, and possibly quicker to charge than existing lithium-ion alternatives.
• The company has been working for many years on its battery but has made steady, measurable progress -- and commercialization is now only a few years away.
• QuantumScape has a deep-pocketed automotive investor (Volkswagen) and a few other global automakers that are interested in its technology.
• It's in no danger of running out of cash any time soon.

If you think electric vehicles are the future, then the investment case for QuantumScape is pretty compelling, with the important caveat that this is still a moonshot.

There's still a chance its technology won't pan out, in which case the company won't be worth much. But if it does work out -- and the signs so far are good -- then its stock will likely be worth a lot more than it is today.

With that big caveat, I think it's a buy -- albeit a risky one. I wouldn't invest money I might need in the next few years, but if you don't mind the risk, it's worth serious consideration.

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John Rosevear has no position in any of the stocks mentioned. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.