QuantumScape (NYSE:QS) shares are continuing to slide and are now down 53% from the mid-November high of $43.08. What’s happening with this promising battery technology company? Electric vehicles (EVs) are hot. The U.S. government is throwing an unprecedented amount of money at the EV industry and QS stock had been rallying after the publication of a study showing impressive results from its new battery technology. However, the rapid price drop has caught many investors off guard. Others have been watching the price — which is now down around 68% year-to-date for 2021 — and sense opportunity.
Which camp should you be in?
Well, if you’re interested in investing in the EV space, choosing a battery company is one way to do so. Between traditional automakers pivoting to battery powered cars and EV startups, there are dozens of companies looking to sell consumers an EV. Picking which ones will succeed and which will flop isn’t easy. However, QuantumScape is developing batteries — something that all EVs need. If the company is successful in leapfrogging current technology, QS stock could be a very lucrative addition to your portfolio, delivering long-term growth.
Why QuantumScape’s Battery Technology Is Such a Big Deal
Over the past 12 months, there has been considerable excitement over QuantumScape and its solid-state batteries. A year ago, QS stock was gaining momentum in a rally that would see shares surge over 1,000% in under two months. That rally peaked at a $131.67 close on Dec. 22, 2020. The reason why investors couldn’t get enough of QuantumScape was its solid-state batteries.
When it comes to EVs, the battery is critical, and accounts for roughly 30% of the vehicle’s price tag. Battery capacity is the biggest factor in their driving range. With range anxiety being a huge concern for EV buyers, vehicle manufacturers are constantly trying to find a balance between cost and range. In addition, there are safety issues around the lithium-ion batteries used in electric vehicles. There have been an unfortunate number of EV fires blamed on the lithium-ion batteries — and they are extremely difficult to extinguish.
There are other challenges with lithium-ion batteries. Performance degrades significantly in cold temperatures. Charging takes too long. Additionally, capacity begins to drop off after a number of charges — retaining 80% capacity after 500 charge cycles is typical.
Last December, QuantumScape announced details on its new solid-state lithium-metal battery technology for EVs. It promises huge gains. According to QuantumScape, its solid-state batteries can deliver up to 80% further driving range than traditional lithium-ion batteries. They retain over 80% capacity after 800 charge cycles, so they last longer before requiring replacement. They were tested in a wide range of temperatures, down to -30 degrees Celsius. The batteries can charge to 80% capacity in just 15 minutes. And QuantumScape says the design, which isolates the anode from the cathode, makes these solid-state batteries much safer that lithium-ion versions.
In other words, they could revolutionize the EV industry. Given the promises of QuantumScape’s solid-state battery technology, it’s little wonder QS stock skyrocketed.
Why Morgan Stanley Has Concerns
After the excitement died down, QS stock suffered a correction, then was flat through the summer. However, in October another rally kicked off after a third-party testing report was released. The test verified QuantumScape’s claims and showed an EV battery using this technology would still be operational beyond 240,000 miles.
This rally came to a crashing halt in mid-November after an analyst downgrade. Morgan Stanley’s Adam Jonas dropped his QS stock price target from $70 to $40, and downgraded his position from buy to hold.
The reason for the downgrade? It’s not that QuantumScape’s results aren’t impressive. The problem is that QuantumScape isn’t yet at the production stage with its solid-state batteries. It’s not expecting production to ramp up and have significant revenue coming in until midway through the decade. And competition in the EV market is coming.
Bottom Line on QS Stock
The current dip in QS stock makes this stock a tempting proposition — assuming you are willing to invest for the long term. Anything can happen at this point, but signs are pointing to QuantumScape being on the track to being a key supplier in the EV industry. Its pre-production status will mean volatility, which could test the nerves of anyone hoping to make short-term gains. However, once QuantumScape solid-state batteries start making their way into EVs, long-term growth will likely follow.
On the date of publication, Brad Moon did not have (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.
Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015.