QuantumScape (NYSE:QS) stock has had a rough go of it over the last four weeks. Its performance is probably only going to get worse in the short term.
That’s because QuantumScape has a new , very similar competitor called Solid Power (NASDAQ:SLDP) , which become a publicly traded company on Dec. 9. Like QuantumScape, Solid Power merged with a SPAC and develops solid-state batteries for electric-vehicles.
Both stocks have fallen in recent days. But even though QS stock has dropped, I expect it to perform well over the longer term.
QuantumScape’s Outlook Hasn’t Changed
Markets tend to overreact to headlines such as Solid Power’s public listing. Yes, QuantumScape now has another publicly traded competitor to deal with. But that doesn’t fundamentally alter how analysts will view QuantumScape and its prospects.
There are still a few good omens for QS stock. First of all, analysts’ average price target for QuantumScape is above $32, while it now sits below $24. As a result, it’s reasonable to believe that QS stock will rebound down the road.
Beyond that, recent events have proven that QuantumScape can be profitable for short-term investors. The shares are volatile, but that’s attractive for investors with certain risk profiles.
A Positive Catalyst From Hertz
On Oct. 25 Hertz (NASDAQ:HTZ) announced that it had ordered 100,000 Tesla (NASDAQ:TSLA) EVs in an effort to electrify its fleet of rental vehicles.
That catalyzed a broad upswing by all EV stocks. The announcement sent QS stock from $25 to $40 over the next four weeks.
But investors must understand that QuantumScape will remain volatile, as it’s a long-term play on solid-state EV batteries. And it bears repeating that QuantumScape won’t begin commercial production of its batteries until 2024 or 2025.
It’s naive to think that there won’t be further upbeat catalysts for EV stocks between now and 2024. And importantly, QuantumScape is progressing nicely.
QuantumScape’s Progress
QuantumScape will remain relevant for at least several more years. It still has every chance of becoming a pioneering solid-state EV battery producer. Back on Nov. 16 QuantumScape:
“released 10-layer battery cell testing data showing 800 cycles at better than one-hour charge rates at 25 degC, achieving the goal it had laid out for 2021. With this achievement, QuantumScape has now met all the milestones it laid out at the beginning of the year.”
There’s no reason to suspect that anything in particular is wrong with the company. It is doing what it should and reaching milestones, so it looks strong.
Yet when a QuantumScape competitor like Solid Power bursts onto the scene, investors sell QS stock. That’s a strange reaction.
One of the bears’ arguments on QuantumScape was that Solid Power has “more than $500 million in fresh capital on its balance sheet” according to Barron’s. QuantumScape has said that it expects to have $1.3 billion in liquidity at the end of 2021, so Solid Power’s capital is not a reason to sell QS stock.
The Bottom Line on QS Stock
Analysts’ average price target on QS stock indicates that the shares will climb. In my opinion, the launch of of Solid Power’s shares dealt QS stock a temporary blow.
But Solid Power is just one competitor on the long road that QuantumScape must travel to bring solid-state batteries to the EV sector. QuantumScape’s outlook hasn’t changed.
Competition simply continues to increase in the solid-state EV battery space. But QuantumScape is just as central to that sector as it ever was, so QS stock will rebound.
On the date of publication, Alex Sirois 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.
