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Goldman Sachs issued a sell rating on QuantumScape (QS -3.74%) this week, and investors are apparently heeding the advice. As of Thursday afternoon, shares of the battery manufacturer were down 10% for the week, according to data provided by S&P Global Market Intelligence, due to uncertainty over whether QuantumScape will ever make good on its promise.
QuantumScape is one of a handful of companies working to commercialize a solid-state battery, a technology that in theory offers a lot of upside over the lithium-ion batteries currently used to power electric vehicles. In theory, solid-state batteries have greater capacity, are quicker to recharge, and more stable than their lithium counterparts, but so far no one has been able to bring a prototype to market.
QuantumScape has some high-profile backers, most notably Volkswagen, but it is still years away from actually powering vehicles. And it is possible the technology will prove impossible to manufacture at scale.
Goldman analyst Mark Delaney believes the uncertainty and risk associated with QuantumScape is too great in this environment. On Tuesday, the analyst downgraded QuantumScape shares to a sell from neutral and lowered his price target to $5 from $8. Delaney notes that the company’s long time to market is likely to result in negative earnings and cash flow for several years. In a market that is increasingly skeptical about high-risk, pre-revenue companies, he believes QuantumScape shares will have trouble getting out of neutral.
QuantumScape came public as part of the special-purpose acquisition company (SPAC) craze. Absent the mania of that period, it is unlikely such an early-stage company would have ever tried to go public. As the mania has faded, QuantumScape investors are getting a painful reminder of why it is start-ups usually stay private for longer.
Delaney’s analysis, though accurate, offers little that an investor doesn’t already know. QuantumScape is a high-risk, high-potential-reward investment more similar to venture capital investing than normal stock trading. That was true when it first went public and remains true now.
For those with a high-risk tolerance, there is a place for QuantumScape as a more speculative part of a diversified portfolio. But those looking to make a quick buck on a stock that is beaten down but poised for a rebound would be better served looking elsewhere.
Lou Whiteman has positions in QuantumScape. The Motley Fool has positions in and recommends Goldman Sachs Group and Volkswagen Ag. The Motley Fool has a disclosure policy.
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