For months, I’ve made the case why QuantumScape (NYSE:QS) stock is a day trader’s dream. It’s going to take many years for this early stage electric vehicle (EV) battery play to prove itself. But, in the near-term, nimble traders can take advantage of its sideways trading pattern.
Take a look at the chart since the start of the year, and you’ll see what I mean. Twice shares have zig-zagged between around $45 per share to nearly $65 per share twice so far in 2021. And, as shares have fallen back to the $40-$45 per share price level, another trip to higher prices may again be just around the corner.
Sure, what has played out lately may not repeat itself in the future. EV plays like this one, that went public via special purpose acquisition companies (SPACs) have lost much of their momentum. With such plays not surging on hype alone anymore, admittedly QuantumScape will need more than general enthusiasm about the electric vehicle megatrend to get its motor running back toward higher price levels.
Even so, there’s still opportunity to buy QS stock when it sharply pulls back, and sell when investors stampede back into it temporarily.
The True ‘Payoff’ In QS Stock Is Years Away
Last November, SPAC Kensington Capital Acquisition closed on its merger with QuantumScape. At the time, exuberance for EV plays was off-the-charts. Was it irrational? Yes and no.
On one hand, Joe Biden’s victory in that month’s U.S. Presidential election kicked off a major change in the Federal Government’s policy regarding clean energy and electric vehicles. This is on top of the business world (especially the incumbent automotive industry) making a hard pivot toward “going green.”
On the other hand, we are far from electric vehicles reaching critical mass. The new Presidential administration may be moving fast with new regulations and subsidies. But, it’s going to take years, if not more than a decade, for the automotive industry to go all-electric.
This alone signals that the big “payoff” for QuantumScape is years down the road. But, there’s another challenge that needs to be worked out.
As you may know, this battery maker’s focus on solid state batteries, or SSBs, separates it from others in the space. Solid state battery technology is more cost effective. It also offers greater range/faster charging times. Ultimately, it may be what finally makes EVs a viable alternative to internal combustion engine (ICE) vehicles. But it’s still a work in progress.
The company recently hit another technical milestone in its quest to build a SSB that can be commercialized on a large scale. Yet QuantumScape might not be able to turn this technology into material revenues until at least 2026. In short, it could be a long time before QS stock hits its all-time high of $132.73 per share again. And remember, it reached this level during the late 2020 mania for EV stocks.
However, as it continues to make progress (albeit gradually), those trading in and out of it may find opportunity.
How This EV SPAC Differs From the Rest
QuantumScape stock may be years away from breaking out to the extent it did right out of the gate. So, why bother with it? Good question. The high volatility around this stock may not make it the best “buy and hold” option out there. But, if you are looking for stocks to trade around, this may be one to keep an eye on.
As I said above, QS stock zig-zagged between $45 per share and $65 per share twice so far this year. Sure, many names in this sector are trending downward. The overall enthusiasm for EV stocks, no matter their quality, may be fully played out.
But, as company-specific factors become a more important driver, that’s a good thing when it comes to trading QuantumScape shares. Other EV SPACs, mainly early stage manufacturers, face many challenges. Namely, the risk of competition from incumbent automakers, as they move into this space with full force.
However, this maker of EV batteries won’t face the same kinds of challenges as its competitors. In fact, given that one of its largest backers is a major global incumbent automaker, their success in “going electric” will trickle down to QuantumScape.
Bottom Line: Buy on Weakness, Sell on the News
With more working in its favor than with other SPACs that merged with early stage EV companies, it’s hard to see QuantumScape shares falling toward lower price levels. But, as I explained earlier, with the true “payoff” years away, it’ll likely trade sideways in the meantime. After all, it’s still working to turn its SSB technology into a highly profitable business.
So, how do you approach this situation? Simple. Buy on weakness, sell on the news. That is, buy QS stock when investor impatience puts downward pressure on shares. And, sell when big news gives it another short-term boost.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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