When faced with a contradiction between seemingly positive fundamentals and ugly price action, it’s tough not to focus more attention on the latter development. For instance, QuantumScape (NYSE:QS) on paper represents a groundbreaking innovation thanks to its solid-state battery technology. However, QS stock certainly belies that concept.
Let me be fair first. For the week ending Feb. 4, QS stock has performed reasonably well, gaining over 5%. However, that’s a pittance against the year-to-date loss of over 25%. In addition, during the trailing one-year period, QuantumScape has managed to dump over 63% of market value. Usually, such negativity doesn’t occur without a reason.
I like to believe in most cases that the price on the technical chart reflects all available public information about the asset in question. So, when people talk about the transformative potential of solid-state batteries, how they could deliver improved range, safety and performance but at lower cost, it sounds awfully intriguing.
Nevertheless, if the consensus was that hopeful for QS stock, its fallout is incredibly distracting. If this were any other context — say buying a used car private party — alarm bells would go off.
QuantumScape Isn’t a Lost Cause
Still, QuantumScape isn’t completely hopeless. Because of the coronavirus pandemic, arguably more people are interested in electric vehicles. For example, EVs have fewer moving parts and by logical deduction require less-frequent maintenance, all other things being equal. Further, EVs can sit in the garage unmoved for longer than a combustion car without certain repercussions (such as a drained battery).
However, range anxiety remains a hurdle for integration. True, this headwind has more to do with perception and psychology than actual capacity. Still, it’s a matter that solid-state batteries could potentially resolve for good, encouraging QuantumScape to keep pushing.
QS Stock and the Recoil
Although some elements of the pandemic are undoubtedly helpful for QS stock, they’re largely helpful in an indirect sense. In other words, without having a product to sell right now, the favorable landscape that Covid-19 provided might not be so favorable when QuantumScape is ready to roll.
Here, I like what my colleague Chris Markoch had to say: “My biggest concern with QuantumScape isn’t the company’s ability to bring a product to market. It’s what the market will look like by the time solid-state batteries arrive.”
Exactly. Markoch continues, adding “Perhaps this won’t be so much of an issue a few years from now, but it’s fair to wonder what the state of play in the EV market will be 10 years down the road.” Well, 10 years down the road, we might not be dealing with Covid-19 but it’s possible we could be dealing with its aftereffects — and sadly, perhaps not in a good way for QS stock.
We’ve all heard talk about how the grand work-from-home experiment could be permanent. Personally, I have some reservations about that projection but let’s just assume this new paradigm sticks. If so, I can’t imagine that would be particularly helpful for QS stock.
You see, EVs generally tend to be more expensive than their combustion-based counterparts. True, EVs are coming down in cost but they’re on average pricier than traditional cars. Now combine this economic reality with people working from home and thus driving fewer miles: the math might not work for EV manufacturers.
Accounting firm KPMG projected that we Americans will do less driving after the pandemic, to the tune of “a 10% permanent reduction of the almost 3 trillion miles typically traveled every year.”
That reduction may mean fewer EV sales than anticipated.
An Unnecessary Innovation?
Markoch brought up the VCR technology Betamax as an example of a superior product not enjoying commercial success. It’s not out of the realm of possibility that QS stock suffers the same fate, especially if working from home becomes permanent.
Not to use my own anecdotal observations to supplement KPMG’s forecast but I don’t doubt its research one bit. If anything, it might be understating the permanent reduction in automotive traffic due to Covid-related disruptions.
Of course, this is looking well into the future, which is essentially conjecture. Still, if you’re interested in QS stock, chances are, you’re hoping for a return to the old normal.
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.