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Why QuantumScape Stock Sank in December and Continues to Fall

What happened

The stock of QuantumScape (NYSE: QS) crashed 23% in December, according to data provided by S&P Global Market Intelligence. Shares of the electric-vehicle (EV) battery start-up were roaring until mid-November when valuation and macroeconomic concerns put the brakes on the rally. QuantumScape stock is already down another 10.9% this month, as of the time of this writing.

So what

The passage of President Joe Biden's $1.2 trillion infrastructure bill that earmarked $7.5 billion on building an EV charging network of 500,000 chargers sent EV stocks surging in November. QuantumScape shares leaped 25% in just the second week of the month. Although the company is still years away from commercial production and sales, its solid-state battery technology is touted to be superior to the lithium ion batteries that currently power EVs, and has kindled substantial investor interest in the stock.

Image source: Getty Images.

In early December, QuantumScape participated in the Advanced Automotive Battery Conference, after which Cowen analyst Gabe Daoud reiterated the stock's rating of outperform with a price target of $36 a share, representing nearly 14% upside from the price at that point in time. At the conference, QuantumScape presented new data on cells reaching more than 400 cycles without any external pressure, as reported by Daoud called it "a significant achievement" for QuantumScape.

Yet the stock hit a roadblock in December. Its rally in the previous month triggered profit-taking even as the emergence of the omicron coronavirus variant and feared lockdowns and decelerating economic growth exerted selling pressure on stocks across various sectors. EV stocks were hit even harder when, later in the month, Sen. Joe Manchin, a West Virginia Democrat, rejected President Joe Biden's Build Back Better plan that proposed significant spending on clean energy, including big incentives on EVs. Investors were betting big on Biden's plan to open up growth opportunities for stocks in the EV industry.

Now what

QuantumScape has been quiet since mid-November, when its testing data came ahead of schedule and revealed its 10-year battery cell could run at least 800 cycles at "better than one-hour charge rates." Any movement in QuantumScape stock price since, therefore, has purely been a reflection of market sentiment and had little to do with the company itself.

Although QuantumScape doesn't expect to start commercial production before 2024, this year could be an important one as the company makes headway into building its production lines and delivering prototypes to its automotive partners like Volkswagen (OTC: VWAGY). That said, although the EV industry is booming and QuantumScape's battery technology holds promise, the stock will likely remain volatile given its high market capitalization of $8.3 billion even after the stock's recent drop.

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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool owns and recommends Volkswagen AG. The Motley Fool has a disclosure policy.


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