One month ago, the industry landscape looked promising for QuantumScape (NYSE:QS). Despite being heavily shorted in 2021, QS stock was being hailed as a potential sector breakout to watch in the coming year. The electric vehicle (EV) battery producer saw shares rise last week after announcing that it would be expanding beyond the EV sector. However, this week isn’t going so well, particularly following this morning’s news. Law360 reports that the company is facing a shareholder lawsuit.
What’s Happening With QS Stock
Shares are slipping today, and it’s not hard to see why. According to the report, a state judge has ruled that the Silicon Valley-based company will be forced to face “all the securities class action claims made by investors” with the exception of one. Shareholders are alleging that the company lied about both battery quality and performance-measuring tests.
QS stock has been falling since news broke of the shareholder suit. After a sharp decline, shares are in the red by 6% as of this writing. Its performances for the week and month are worse, down 15% and 19%, respectively. While the stock is currently flatlining, there is nothing to indicate that it will rise.
Why It Matters
Frankly, there’s no reason that QS stock should go up anytime soon. A shareholder lawsuit rarely ends well for a publicly traded company. Even if the claims against it are thrown out, the negative momentum it generates will drive down prices in the short term as investor confidence wains.
U.S. District Judge William H. Orrick has stated that allegations against QuantumScape were “sufficient to state a claim and adequately alleged scienter and loss causation.” Law360 also reports that plantiff’s legal counsel has informed them that they “look forward to litigating the case’s merits.” QuantumScape’s legal department did respond to the outlet’s request for a comment.
None of this bodes well for the company’s chances in court. This is truly a tale of how hard the mighty can fall. In 2020, Wired reported that QuantumScape had the data to prove that its solid-cell battery technology could change the EV field forever. For the investors seeking to cash in on the EV boom in its early stages, this sounded too good to be true. As it turns out, that’s exactly what it was.
Just how good is QuantumScape’s technology? We may never know. Any progress that the company makes moving forward will be colored by this legal battle. Unless it turns out that all claims made against it are false — and no signs point to that outcome — QuantumScape’s run may be over. While this company fights it out in court, its competitors such as Solid Power (NASDAQ:SLDP) will be working to expand their share of one of the hottest markets.
What It Means
This company has big plans for the future that they may have to scrap, at least for now. Unless a complete change in leadership occurs and the company is able to demonstrate complete evidence of progress, it will be hard for investors to confidence assess QS stock as a winner. That doesn’t mean it’s impossible, but the road ahead will be quite difficult for a company that recently seemed to have so much potential.
It is certainly worth watching these legal proceedings to see how this story unfolds. However, overcoming a shareholder lawsuit is difficult. Even if the company does manage to pull off a miracle, it will likely not be for months. For the foreseeable future, QS stock seems destined to remain stagnant at best.
On the publication date, Samuel O’Brient 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.