On the surface, electric-vehicle battery manufacturer QuantumScape (NYSE:QS) offers a seemingly bulletproof upside narrative. Since the get-go, range anxiety has impeded widescale adoption of EVs. Should QuantumScape be successful in developing its solid-state battery, it could alleviate concerns due to enhanced range, quicker charging times and safer profile. Thus, QS stock is a buy or so it seems.
However, the problem is, as InvestorPlace’s Thomas Yeung mentioned, “investors have become increasingly concerned over QuantumScape’s ability to deliver on its promises.” Yeung specifically pointed to innovative Chinese firms that could stymie QuantumScape’s path to profitability. Just as importantly (if not more so), a glut of EV supply has also impacted demand for lithium metal and batteries.
But an even bigger and more elemental headwind is that SSBs may simply not be that relevant anymore. As a result, investors should be very cautious about QS stock. Analysts rate shares a moderate sell for a reason.
QS Stock Isn’t Aligned with the Right Question
In order to come up with the most appropriate answer, one must first understand the question. For EV battery specialists, the initial inquiry will set the tone for the entire organization: what’s the central issue that is preventing customers from making the jump to EVs?
For years, the answer has been the same across the board: range anxiety. Basically, many combustion-vehicle drivers are worried that there are not enough public charging stations available. Combined with the inconvenience of sitting around for half-an-hour waiting for the vehicle to charge, it leaves prospective customers leery.
However, the issue with QS stock and the underlying SSB solution is that addressing range anxiety isn’t just about increasing numbers. Rather, the concern is a holistic one. Consumers are worried about the relatively limited range of EVs because of the lack of readily available charging solutions.
When combustion car drivers run low on fuel, they don’t freak out. Drive around in a metropolitan area and there’s bound to be a gas station. The same can’t be said (right now) for EV drivers.
To be sure, QuantumScape could potentially deliver game-changing returns for QS stock if it actually delivers a commercially viable SSB. However, the issue here is that it would have to do so quickly. Because if EVs become more integrated in everyday society, there would be an economic incentive to integrate charging solutions at places people regularly visit: school, work, shopping centers, houses of worship, the list goes on.
If public charging becomes plentiful, in many ways, SSBs become moot. What’s the difference between 200 miles of maximum range and 300 miles? If charging solutions are readily available, then EV drivers don’t have to worry about range.
A Scientific Dilemma
Even more challenging for QS stock is the underlying science. Suppose that the only possible solution for range anxiety is building a better battery. That would be great for QuantumScape but the battle would only be half-won. The company still needs to deliver.
And this is where circumstances get hot under the collar. According to Reuters, the allure of SSBs is that they can hold more energy than liquid lithium-ion batteries. Further, this new battery tech could reduce charging times and be safer than traditional lithium-ion batteries, since their liquid electrolyte is volatile and flammable.
However, the difficulty centers on designing a solid electrolyte “that is stable and chemically inert and yet is still a good conductor of ions between the electrodes. They are also expensive to fabricate and prone to cracking.”
So, we have three major problems. First, cracked electrolytes could cause safety issues, such as short circuiting. Second, SSBs are incredibly difficult to make at the size necessary to power EVs. Investors of QS stock are obviously hoping for a commercially viable product, not a lab queen. Third, if SSBs end up being more expensive than traditional EV batteries, then the tech may end up being pointless.
Increasingly, with a backdrop of high inflation and high borrowing costs, consumers are citing cost as the central obstacle in their EV decision-making process. And that relates to range anxiety because consumers already know that they can pay extra for more capable batteries with greater range.
The question is whether customers can buy an accessibly priced EV with adequate capacity. If QuantumScape can only deliver a viable SSB but at an exorbitant cost, it’s not really providing an answer.
Relevancy Threats Cloud QuantumScape
Under a one-dimensional framework, QS stock appears a no-brainer. What’s preventing customers from adopting EVs at scale is range anxiety. QuantumScape’s SSB could fix that. However, range anxiety is a holistic issue that could be addressed in myriad ways. If society offers charging solutions, SSBs would lose much of their appeal. Further, if this new tech isn’t reasonably priced, it would defeat the purpose of even offering this innovation.
On the date of publication, Josh Enomoto 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 InvestorPlace.com Publishing Guidelines.