With QuantumScape’s (NYSE:QS) recent first-quarter earnings report, the devil may be in the details. Earlier, UBS slashed its price target on QS stock to $5 from $9 after the company reported an earnings miss. However, an element of QuantumScape’s core product may have spooked investors.
At first glance, the red ink in QS stock appears to be a straightforward matter. On Wednesday, the company — which specializes in solid-state battery (SSB) technology for electric vehicles — reported a loss per share of 24 cents. The analyst consensus called for a loss per share of 21 cents.
In addition, the EV sector is undergoing a significant fallout. Earlier this week, Tesla (NASDAQ:TSLA) released its Q1 earnings report, which slipped below analysts’ expectations for the top and bottom lines. One worrisome element is that economic factors – particularly high interest rates – appear to be stymieing buyer sentiment.
Globally, news agencies report similar dynamics. In Europe, EV sales have dropped substantially, with many drivers pivoting back to combustion-powered vehicles. So, QuantumScape is delivering a solution for a platform that consumers are shying away from. However, that’s not the only factor at play.
Relevancy Issue Hurts QS Stock
In QuantumScape’s Q1 shareholder letter, management discussed the progress tied to its SSB. Specifically, the leadership team mentioned that for fast-charge capabilities, its large-sized SSB (featuring a 100-kilowatt-hour pack) has “demonstrated the capability to fast charge from 10% to 80% state of charge in less than 15 minutes.” That’s in line with the company’s goal of between five and 15 minutes.
While that sounds like great news for QS stock, the AP reported that the very subcategory that QuantumScape seeks to serve — large (and therefore expensive) EVs — may be coming under fire. Adding to the pressure is that U.S. EV sales growth faded to 3.3% in Q1. That’s well below the 47% increase that analysts previously projected.
As if that wasn’t bad enough, hybrid vehicle sales skyrocketed 45% in the three months ended March 31. Also, plug-in hybrids – which can run on battery power for short trips – saw sales expansion of 53%. Therefore, while QuantumScape’s technology is undoubtedly exciting, the innovation is progressing at a time when consumers are moving away from EVs, especially large EVs.
In turn, QuantumScape may need more cash to stay viable. It’s quite possible, then, that investors will be less tolerant of deeper-than-expected losses for QS stock.
Why It Matters
According to TipRanks, analysts overall rate QS stock as a consensus moderate sell. That’s a big warning sign, as analysts prefer to be diplomatic with hold ratings. The average price target — not inclusive of the UBS slash — comes in at $6.13, implying over 21% upside potential.
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.
