Why QuantumScape Shares Dropped Today

What happened

QuantumScape (NYSE: QS) shares are significantly outperforming other technology stocks to the downside today. While the tech-heavy Nasdaq Composite index was down about 1.3% as of 2:45 p.m. ET, QuantumScape stock was lower by 6%.

So what

Nothing from the company has investors bailing on the stock. But the macro picture just isn't what a stock like QuantumScape needs right now. The company is in the midst of a multiyear development for a potential game-changing battery for the EV industry. If successfully commercialized, solid-state battery technology should provide faster charging times with a more efficient and safer battery. It could also provide longer vehicle range with better performance and a longer life cycle than current lithium-ion batteries.

But commercialization is still several years away, and the current economic environment has investors moving away from stocks like QuantumScape that have yet to begin bringing in revenue and are valued strictly on hope and potential.

Now what

The Federal Reserve is expected to announce another relatively large interest rate increase tomorrow, and that values future potential earnings projections lower for technology stocks like QuantumScape. The company continues to make progress with its technology, but it likely won't bring in meaningful revenue until at least 2025.

In its most recent quarterly report, QuantumScape said it has signed customer sampling agreements with six automotive manufacturers. That includes several that are in the top 10 by global revenue as well as premium performance and luxury automakers.

But the process still needs to include testing, validation, and pre-production pilot line construction. If successful, the company has huge potential, but right now that's not enough for investors who see a struggling economy for some time to come. Where the Federal Reserve's decisions steer the economy could help dictate how this stock continues to perform in the short term.

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Howard Smith has positions in QuantumScape Corporation. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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