Saturday, February 4, 2023
HomeMarketGoldman Sachs Sours on QuantumScape Stock. The Stock Is Falling.

Goldman Sachs Sours on QuantumScape Stock. The Stock Is Falling.

Volkswagen is a big investor in QuantumScape

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Nagyidaiov/Bloomberg

This is not the market for stocks that don’t generate positive free cash flow and earnings. That is driving one analyst to downgrade the stock of electric vehicles battery technology startup
QuantumScape.

Goldman Sachs
automotive analyst Mark Delaney downgraded
QuantumScape
(ticker; QS) stock to Sell from Hold late Tuesday. He cut his price target to $5 a share from $8.

QuantumScape shares are down close to 7% in premarket trading, at $6.65 a piece.
S&P 500
and
Dow Jones Industrial Average
futures are largely flat.

QuantumScape is working on solid-state, lithium anode EV battery technology.

Solid-state, in this instance, refers to eliminating liquid electrolytes in batteries. Electrolytes facilitate the movement of electrical charge. And a typical EV battery has a graphite anode. Eliminating the graphite saves cost and space. The sides of a battery are called cathodes and anodes. Electrical charge flows from one side to the other depending on whether the battery is in use or recharging.

It’s a technically complex and difficult product to develop. Solid-state EV batteries hold the promise of faster charging, lower costs, longer per-charge range and improved safety, but they are still in the development stage. Wall Street doesn’t see QuantumScape generating significant sales until 2026 and beyond. No significant sales are expected in 2023 or 2024.

Delaney points out in his report that it this isn’t a great market for development stage companies that need external capital to develop their businesses. He says investors are more focused on companies that can generate cash flow in a weakening economy.

QuantumScape ended the third quarter with more than $1 billion in cash on its books. Wall Street projects the company will use more than $1 billion in cash in 2023 and 2024 combined.

The idea that cash matters more these day to investors isn’t a revelation. Coming into Wednesday trading, QuantumScape stock is down about 68% year to date. Shares are down about 94% from their all-time high of almost $115 a share set in late 2020.

Right now, no analysts recommend QuantumScape stock. The average Buy-rating ratio for stocks in the S&P 500 is about 58%. The average analyst price target is higher than Delaney’s at about $9 a share.

Write to Al Root at allen.root@dowjones.com

 

Credit: marketwatch.com

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