Why QuantumScape Stock Popped (and Dropped) on Monday

Shares of experimental solid-state battery maker QuantumScape (QS 1.61%) are all shook up on Monday, first dropping 2% then erasing those losses and popping more than 4% higher — and then giving back some of those gains, too. As of 12:30 p.m. ET, the stock was up about 1.6%.

What’s to explain investors’ inability to make heads or tails of where QuantumScape’s going today? The better question is who is to blame. And the answer is investment bank HSBC.

What HSBC said about QuantumScape

In a note covered on The Fly this morning, HSBC announced it is initiating coverage of QuantumScape. That’s the good news. The bad news is that HSBC’s opinion of the stock is that investors should “reduce” their exposure to it (i.e., if you own it, sell it) — and that this stock, which costs nearly $7 at present, is actually worth closer to $4.70 a share.

HSBC acknowledges that “the age of disruption” (of the auto industry by electric cars) is underway and that over time, electric cars will more and more replace sales of cars powered by internal combustion. Again, this is the good news.

The bad news is that before QuantumScape will be able to benefit from this trend, it must travel a “long path to commercialization,” during which time the company is likely to burn through copious amounts of cash — and it may not even succeed in becoming profitable in the end.

Is QuantumScape stock a sell?

Most analysts are sitting firmly on the fence and declining to recommend QuantumScape stock. According to data from S&P Global Market Intelligence, only one out of nine analysts polled rate QuantumScape stock a buy.

Looking way out into the future, there’s consensus that QuantumScape might one day become profitable, but today is not that day. The most optimistic take, in fact, seems to be that QuantumScape might earn its first profit in 2030. And free cash flow isn’t expected to arrive until two years after that.

Meanwhile, between now and then, QuantumScape is expected to need roughly $9 billion in cash to remain solvent — of which it currently has just $1 billion, net of debt. That means this currently $3.3 billion, profitless, revenue-less company needs to raise $8 billion over the next near-decade in order to have even a hope of eventually earning a profit for its investors.

Faced with all these facts, I’m forced to agree with HSBC: QuantumScape stock is probably a sell.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.

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