QuantumScape Stock Drops After Surprise Profit. How a Company With No Sales Made Money.
QuantumScape reported a surprise third-quarter profit, driven by an accounting change. Nonetheless, progress in developing solid-state lithium anode EV batteries is what moves the stock.
Courtesy QuantumScape
QuantumScape stock is down even after the solid-state-battery pioneer reported third-quarter financial results that reveal a surprise profit.
QuantumScape (ticker: QS) made money—a surprise for a company with no sales. But investors should remember, results just don’t matter. QuantumScape is a pre-sales technology startup, and technical progress is the name of the game. Quantum’s advances continue, and things are roughly on schedule.
QuantumScape shares are down about 4.4% in premarket trading. That’s not a big move for Quantum.
In its quarterly letter, QuantumScape said the company has made it through three of its four planned milestones for 2021. Those three include: meeting technical milestones for partner Volkswagen (VOW.Germany); preparing a pilot battery manufacturing line dubbed QS-0; and building four-layer battery cells.
The company also reported 4 cents in earnings per share. Making money with no sales is a trick, but there was a change in the fair value of stock-warrant liabilities that drove an accounting gain.
Quantum ended the third quarter with about $1.5 billion in cash and expects to end the year with about $1.3 billion. The company has burned through roughly $60 million a quarter in the past couple of quarters.
Since the second-quarter earnings report on July 27, shares have done well, up about 20%. The S&P 500 is up about 4% over the same span, while the Dow Jones Industrial Average added about 2%. Most of the gain, however, happened right after earnings. Shares jumped 13% the day following earnings.
Back then, the company said its first 10-layer cells were being tested. That was a few months ahead of schedule. Finishing up some development on the 10-layer cells is the company’s final 2021 milestone.
A QuantumScape battery layer looks like a playing card. A big challenge for the company is to turn one card into a deck of cards. The decks will form the basis of EV battery packs. A 10-layer stack is analogous to a stack of 10 playing cards.
Going from 10 cards to essentially 52 cards will take a while. QuantumScape is still a long way from commercial sales. The company is pioneering solid-state, lithium anode batteries. Solid state, in this case, means no liquid in the batteries facilitating the movement of electrons. QuantumScape’s technology promises better electric-vehicle range and safety along with faster charge times and lower costs.
As a tech startup, calling the reaction to earnings is difficult. After the company’s first-quarter earnings report, shares fell 7.4%. The company made progress in the first quarter too, but shares were almost $30 back then. The starting price seems to be the only difference.
With Tuesday’s close at just below $26, Quantum stock was worth about $10.8 billion. That’s about five times Wall Street’s estimated 2027 sales of about $2 billion.
Management hosts an earnings conference call at 5 p.m. ET. Investors and analysts will want to hear about more detail about solid-state battery development progress.
Write to Al Root at [email protected]
