QuantumScape Targeted By Short Seller

Shares of QuantumScape are down nearly 56% since its August IPO.

Courtesy QuantumScape

QuantumScape stock dropped more than 12% on Thursday after short seller Scorpion Capital published a report questioning the company’s claims about the performance of its batteries.

QuantumScape (ticker: QS) stock was up about 4% in Friday trading.

Scorpion’s 188-page report contains partial quotes from interviews with former employees of QuantumScape and battery experts. Simply put, Scorpion tells Barron’s it doesn’t believe the company’s claims about its battery technology and that it misled investors.

QuantumScape management pointed Barron’s to a thread on the company’s Twitter account posted in response to the report. In the social media post, the company denied some of Scorpion’s claims, reviewed data published about its technology, and said Scorpion, as a short seller, has a financial incentive to see the stock price drop.

“QS stands by its data, which speaks for itself. We have provided higher transparency than any other solid-state battery effort we are aware of,” QuantumScape said on Twitter Thursday evening.

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In the report, Scorpion said it has sold QuantumScape shares short, meaning it borrowed stock it doesn’t own and sold it, hoping to replace the borrowed shares at a later date after the price has dropped. Short selling is a common hedge fund practice and many short sellers believe it’s important to have some skeptical voices reflected in stock prices.

One claim levied in the report hits at the heart of the company’s technology: Scorpion said QuantumScape must use a liquid electrolyte in its solid-state batteries. Unlike today’s electric-vehicle battery technology that has a liquid medium to facilitate electrical current, QuantumScape says its solid-state batteries have no liquid electrolyte.

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Scorpion’s claim is based on interviewing battery experts. There are no QuantumScape batteries in the marketplace to examine. QuantumScape did not specifically address the accusation in its Twitter post.

The electric-vehicle battery pioneer’s technology is new and arcane, involving discussions of temperature, milli-amps, and multiples of atmospheric pressure. QuantumScape is developing solid-state lithium anode rechargeable batteries that promise lower cost, higher range, better safety, and faster charge times for electric vehicles. Success would be a panacea for the electric vehicle industry.

QuantumScape’s technology hasn’t worked in automotive applications yet for a host of reasons, but the company appears to be making progress and is backed by Volkswagen (VOW3.Germany).

This isn’t the first time electric-vehicle investors have had to weigh accusations made by short sellers. Nikola (NKLA), Lordstown Motors (RIDE), and Arcimoto (FUV) have all been targets of skeptical reports. In all three cases, the companies disputed the claims. Their stocks have fallen below where they were trading before the reports were published.

Short sellers aren’t the only reason electric-vehicle stocks have been trading lower. Many smaller, high-growth technology stocks have sold off sharply in recent months as interest rates rise. Roughly 200 SPACs that Barron’s tracks are down about 25% from 52-week highs, on average. Those highs came around late January.

Investors have started focusing on more traditional stocks with leverage to the overall economic recovery. The S&P 500 and Dow Jones Industrial Average are both up roughly 9% over the same span.

Write to Al Root at allen.root@dowjones.com

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