QuantumScape’s bear market is in full swing

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One of Warren Buffet's favorite quotes comes from the father of value investing, Benjamin Graham. It goes like this: in the short run, the market is like a voting machine but in the long run, the market is like a weighing machine. This means that in the short run, the market is tallying up which firms are popular and unpopular but in the long run, the market is assessing the substance of a company. Electric car-battery developer QuantumScape (QS) is a textbook example of the stock market behavior in the short term. One moment it was a market darling, and the next, it was completely out of favor.

Lately the selling pressure on QS stock has been intense. So intense that the company has lost a whopping 60% of its value in the past two weeks. No, the company didn't declare bankruptcy and nothing equally devastating happened to it. In fact, nothing news worthy came out about the company, its technology or the market it's in. 

As mentioned in a previous article, QS is not all hype, like Nikola, whose own technology (or lack of it) was the subject of a scathing short-seller report. It's certainly far from that. QS has many prominent backers, including: Volkswagen (VW) which invested about $300 million and owns a 23% stake, Microsoft cofounder Bill Gates,  and hedge fund billionaire George Soros. More importantly, the science and the technology behind QS are real. The company appears to have pulled off a real feat - at least in the lab. How so? Well, building a solid state battery that will function at the rates and temperatures needed for real world applications is hard - very hard. So hard that nobody has done it. But in the beginning of December, QS released performance data demonstrating that its technology and innovative chemistry could one day enable electric vehicles to travel further and be charged faster, at lower cost.

Finally, there is massive untapped market opportunity for what the company is developing and nothing has changed about that in the past two weeks. QuantumScape’s business is to develop next-generation, solid-state lithium batteries for EVs. Demand for lithium batteries will grow exponentially in the coming years and the market for QS’s solid-state lithium batteries, which charge quickly (just 15 minutes needed to charge to 80%) and offer a relatively low manufacturing cost, remains quite robust. Not only that, but the company already has an agreement with VW to install its batteries into VW cars.

As mentioned previously, sustaining that $50B valuation will prove much more challenging for QS than the advanced battery science. However, I'm remain very optimistic about QS and think its stock is a great long term bet. Its batteries have a big shot at propelling the next generation of electric vehicles. So, if you're an investor, don't panic, hold on to the stock. As I mentioned before, QS is not for the faint hearted. So, tighten your seat belt, the very wild ride is far from over and be ready to capitalize on the many swings in the short term.

Disclaimer: This post is merely my own assessment and is not an investment recommendation. For professional advice, seek input from a licensed investment advisor.

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