Stock Market

Solid-state battery startup QuantumScape (NYSE:QS) made a quantum leap in value with QS stock rising 8%. It brought the scrappy battery maker back to break-even for the month, though it remains 10% below where it started the year.

Is that a sign for investors that QuantumScape is ready to recover the significant ground it’s lost since going public? Or is this as good as it gets and this is a good spot to cut losses for more attractive opportunities? Let’s try to tease out an answer.

Setting a New Course

QuantumScape jumped because the battery maker announced it began shipping to customers its Alpha-2 prototype battery.

Obviously that’s not a commercial product, but it is an important milestone for the company. The Alpha-2 is the demonstration model of the battery it hopes to commercialize.

It’s the one QuantumScape will use to design its manufacturing facilities around when it wants to build at scale.

It’s a significant development. Last month, Dr. Siva Sivaram, an executive with a history of bringing next-generation technology to market, was appointed as president and CEO of the battery stock.

His appointment showed QuantumScape intended to be more of a battery manufacturer than a technology licenser.

That’s neither good nor bad. It just means QS stock has decided upon a direction and is now focused on reaching its goal. That alone is positive.

The crux is now whether the Alpha-2 lives up to its promise. The original A0 prototype previously sent out to customers for testing met and often exceeded expectations.

The current iteration is the next step in eventually getting to the QSE-5 version that will be the one QuantumScape takes to market.

Creating Something from Nothing

Yet there are still many steps between Alpha-2 and QSE-5. QuantumScape will continue shipping out the prototypes while focusing on battery reliability and ramping up its Raptor production process.

Reliability is obviously important. A year ago, the battery maker said that while the A0 prototype was performing well, “we have work to do to improve reliability.”

That indicated there were still some issues in the battery’s design. That’s not unexpected in a new technology, but it’s often where a breakdown and ultimate failure occurs.

The concept is good, the practical application of it just doesn’t work. QuantumScape is taking measured steps to ensure it doesn’t meet the same fate.

But its latest statement indicates there are still issues being ironed out. It is a quantum leap in design and function QuantumScape is attempting to achieve.

Solid-state batteries replace the polymer separators currently used in lithium-ion batteries with a solid-state version. That allows the solid-state battery to use a lithium-metal anode instead of carbon or silicon anodes.

The benefit is denser cell energy, quicker charge times, safer construction and lower costs.

The cell separator is the key. QuantumScape is using a flexible ceramic material that conducts electricity but resists the formation of dendrites.

Those are metal projections that build up on the lithium and eventually penetrate the electrodes, which cause a battery to short out.

The design allows QuantumScape to make an anode-free battery as the anodes form themselves on the first charge.

QS Stock and Scalability

This is incredibly advanced technology but achieving all the endpoints is very difficult, particularly at scale.

QuantumScape is still experiencing failures along the way and is using feedback from its customers to fix and improve its batteries.

What it means is that although the company is making steady progress, its batteries are not quite ready for prime time.

The Raptor phase of production for which it is installing equipment now is where this ceramic material needs to be certified. It needs to be able to ramp up production with this material to go onto the Cobra phase.

That’s why I still caution against going all-in on QS stock. While the battery maker is making great strides, it hasn’t perfected the technology yet and there is still a way to go.

It has sufficient money to last until 2026 but the clock is ticking.

I’d recommend watching from the sidelines. At most, only make a very small investment to have some skin in the game to keep you interested in its progress.

QuantumScape could change the battery landscape if successful, but it’s not time yet to make that leap of faith.

On the date of publication, Rich Duprey did not hold (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.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

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