QS Stock: The Big Reason Battery Startup QuantumScape Is Stumbling Today

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Investors are paring back Monday’s 8.3% gains in shares of QuantumScape (NYSE:QS) in Tuesday’s pre-market trading. QS stock is selling off the morning after the battery startup revealed plans to fund its pilot program with a new stock offering.

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Late Monday evening, the San Jose, California company said it’s seeking to raise as much as $859 million to expand a pilot line for development of its solid-state battery technology. In mid-February, the firm said it would build a 200,000-square-foot California plant to produce prototype cells in collaboration with Volkswagen (OTCMKTS:VWAGY). The just-announced raise will be used to double that pilot production line’s capacity.

While the expansion is ultimately good news for QuantumScape, QS stock investors may not like the dilution implied by the offering of 13 million shares of Class A common stock. In addition to covering the company’s full share of its VW joint venture, some of the money will be used for working capital and general corporate expenses.

QuantumScape is among the most volatile of EV-battery niche stocks that have listed via mergers with special purpose acquisition companies (SPACs). Since its tie-up in early December with Kensington Capital Acquisition, QS stock peaked at $131.67 a share on Dec. 22, 2020. It dipped to lows in the $42-$43 range a month later.

QS Stock Beating Battery Sector

The 28.7% year-to-date gain in the QS stock price compares with a 10.2% loss for shares of Global X Lithium & Battery Tech ETF (NYSEARCA:LIT).

The latest offering may have caught some investors off-guard, having believed QuantumScape’s founder and CEO Jagdeep Singh at the time of the Kensington announcement.

The deal provided net proceeds of approximately $680 million to the firm. QuantumScape had raised another $500 million from institutional investors ahead of the SPAC merger news.

“This transaction allows QuantumScape to fund development and commercialization of our OEM-validated battery technology as we look forward to playing our part in the electrification of the automotive powertrain,” he said.

Perhaps. But InvestorPlace contributor David Moadel may have been on to something when he covered QS stock last month, highlighting the company’s legal problems.

In particular, lawyers are recruiting angry shareholders after QS stock declined by a jaw-dropping 41% on Jan. 4 after disclosing it filed a Resale S-1 form on Dec. 31. That filing sparked investors’ concern that the company would sell a large number of QS stock shares, leading to share dilution.

Now, it’s late March, and that dilution — some 13 million shares worth — is about to happen. Stay tuned.

On the date of publication, Robert Lakin did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

InvestorPlace contributor Robert Lakin is a veteran financial writer and editor, following fintech, agtech and property tech startups.