Stocks to sell

Why the QuantumScape Stock Death Spiral Will Continue

It wasn’t very long ago when QuantumScape (NYSE:QS) stock was flying high.

The party didn’t last long, however, and some of QuantumScape’s investors are seeing red on their screens now. Unfortunately, I expect the shares to lose more value in the coming weeks.

It may be discourteous to call electric vehicle battery technology specialist QuantumScape a “zombie” company. Yet, there are too many red flags for prospective investors to ignore.

Sure, QuantumScape may have game-changing EV battery innovations in the works.

On the other hand, QuantumScape’s financial problems are major deal-breakers, and a recent share offering will undoubtedly raise some eyebrows.

QuantumScape’s Startling Stats

Here’s a bit of advice that I hope you’ll take to heart. Don’t just glance at a company’s quarterly press release or shareholder letter. Always check the company’s Form 10-Q quarterly report, as well.

A Form 10-Q is presented more as a statement of the facts, rather than as a marketing campaign with a positive spin. Sure, you’ll want to read QuantumScape’s second-quarter 2023 shareholder letter. But then, you might have to scroll down to the bottom of the document, and use a magnifying glass to read QuantumScape’s discouraging financial facts.

Therefore, I encourage you to also read QuantumScape’s Form 10-Q. There, you won’t have to do much digging to discover that QuantumScape’s operating expenses increased from $95.87 million in the year-earlier quarter to $123.54 million in Q2 2023.

Since QuantumScape doesn’t generate any revenue, the company’s penchant for spending is alarming. It’s not surprising but still shocking that QuantumScape’s net earnings loss widened from $185.19 million in the year-earlier quarter to $221.14 million in 2023’s second quarter.

In case that’s not bad enough, the Form 10-Q also reveals QuantumScape’s dwindling capital position. Specifically, the company’s cash, cash equivalents and restricted cash position declined from $360.89 million at the end of 2022’s second quarter to just $250.36 million at the end of Q2 2023.

Why QS Stock Crashed

Sometimes, a company’s stock can rally regardless of that company’s financial problems. An example would be QS stock, which soared from $8 to $13 in July. Then, the QuantumScape share price crashed to $7.50 in early to mid-August.

Investors had quickly coughed up all of July’s gains, and then some. Most likely, QS stock rallied in July because the broader stock market was in a risk-on mood. EV stocks performed well, and perhaps there was renewed hope that QuantumScape would successfully commercialize its battery technology soon.

However, QuantumScape’s large-scale share offering threw a wet blanket on the rally. Specifically, proposed and then finalized a public offering of 37.5 million common stock shares. Plus, the public offering’s underwriters were given a “30-day option to purchase up to an additional 5,625,000 shares.”

So really, we’re talking about QuantumScape potentially printing up and selling more than 40 million shares. Understandably, QuantumScape’s current shareholders weren’t ecstatic about this development. Some of them quickly dumped their QS stock shares due to dilution concerns.

QS Stock: The Death Spiral Isn’t Over Yet

QuantumScape’s public offering seems like the desperate measure of a business with a dwindling capital position.

Also, there’s a trust issue here. Once a company resorts to large-scale share printing and selling, it might use this tactic again in the future. Besides, QuantumScape’s financial facts suggest that it may be a “zombie” now or in the near future.

I’m not trying to be disrespectful to QuantumScape. Rather, I’m only sending out a warning signal about QS stock, as I expect it to lose more value and probably continue falling to $5 before the year is over.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.