QuantumScape Stock Looks a Lot More Intriguing After This Latest Drop

It’s been a little over a month yet QuantumScape (NYSE:QS) stock has already gone full circle.

A sign for QuantumScape (QS).
Source: Michael Vi / Shutterstock.com

On Oct. 28, QS stock closed at $25.40. By exactly mid-November, shares closed at $40.58, a neat 60% profit to take with you about a week-and-a-half before Thanksgiving. Shares have plummeted since then with QS set to open at a little more than $26 today.

It’s hard to imagine how a month’s worth of trades could fundamentally change the trajectory of a tech firm, especially when outside factors seemed so bullish earlier on.

Nevertheless, those outside factors turned out to be a double-edged sword for QS stock and related names. As you know, QuantumScape is a leader in solid-state battery technology for electric vehicles.

In late October, when Hertz (NASDAQ:HTZ) announced the ordering of 100,000 vehicles from Tesla (NASDAQ:TSLA), TSLA shares naturally experienced robust buoyancy. But the news also lifted seemingly the entire EV segment.

True, some rumblings about delivery speed occurred following the disclosure. Still, the main implication was that EVs were going mainstream.

Obviously, that’s a massive catalyst for QS stock and its underlying core business. Ardent EV supporters can talk all they want about how range anxiety is no big deal.

It may not be a big deal for you, especially if you’re well off and have access to other transportation solutions, but it is a big deal for many consumers, who may treat their EVs as their primary (and/or) only vehicle.

Indeed, consumer surveys show that range anxiety is a real phenomenon. Even if it wasn’t, that people perceive it to be makes it real. Automakers aren’t stupid. If they lose the information war, their EV investments could be crippled.

Therefore, QS stock isn’t just a science-based investment. It’s a marketing one as well.

Omicron Comes a Knocking for QS Stock

Unfortunately, the same thing above can be said about the omicron variant of the novel coronavirus. Because the strain is so new, scientists won’t know the full extent of its risk profile. Nevertheless, some evidence is coming in to develop a more solidified picture.

According to the Wall Street Journal, early if still anecdotal data points to the variant’s ability to spread even among vaccinated people. While the same information also suggests that symptoms of the infected are mild, the public will likely key in on the transmissibility component.

Is that fair and accurate? Maybe, maybe not, but the consumer economy is not Fox News. If consumers fear omicron, then it’s a serious problem. Likewise, if prospective EV drivers fear lack of range capacity and infrastructural availability, guess what? It’s a problem.

Under normal circumstances, the range anxiety issue is a massive upside catalyst for QS stock. If QuantumScape can successfully bring a powerful, relatively inexpensive and long-range capable SSB to the commercial market, it could be the missing link to finally bridge EVs into the mainstream — and not just for Silicon Valley tech bros.

However, the omicron variant is a troublesome headwind. Early on, reports emerged from South Africa — where scientists first discovered the strain — that it largely produced mild symptoms. Therefore, the WSJ confirming this in another population outside of South Africa should bring some comfort to investors.

Instead, we saw a broad selloff hit the market, with the S&P 500 losing almost 1% whereas the tech-centric Nasdaq dropped nearly 2% on the Dec. 3 session. Investors are taking this variant seriously, although again, it’s just not clear how dangerous omicron is.

Either way, perception is what matters, not necessarily the actual facts. And that’s a problem for QS stock.

A Long but Enticing Road Ahead

Not only is QuantumScape facing a perceptional challenge, it must also deliver the goods. That’s the bigger obstacle ahead.

If the company can only partially replicate the groundbreaking implications of SSBs — say, longer range but at a super-expensive price — then the business will probably fail.

In my view, SSBs are all-or-nothing affairs. The reason people pay attention to them is because they offer the best of all worlds — price, performance and sustainability. We already have technology that covers the best of some worlds.

Still, QS stock is intriguing because the underlying company is making progress with its SSB development. With the price of shares being offered at a relative discount, it might be worth throwing some under-the-sofa change at the equity unit.

On the date of publication, Josh Enomoto 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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.


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