Stock Market

It May Take This One Thing to Get QuantumScape Stock Back on Track

QuantumScape (NYSE:QS) is not without its issues. Various company-specific problems have weigh on QS stock. This EV battery technology stock needs more than just fixing its issues to shake its slump. Sentiment for EV and EV-related stocks need to move back towards bullish. Unfortunately, a sentiment shift may not be necessarily just around the corner.

Sure, it’s been nearly three years since the peak of the EV stock bubble. There were brief periods where sentiment for the sector has improved. However, pessimism about the near-term prospects of the EV economy may be on the rise once more. With this, let’s take a closer look and see what this means for investors interested in entering a position, whether now or down the road.

QS Stock and EV Pessimism

During late 2020/early 2021, the market’s mania for all things EV was a major positive for the price performance of QuantumScape shares. Debuting in the public market at this time, after the once privately-held company completed a special purpose acquisition company merger, the stock surged to prices well over $100 per share.

QS stock crashed hard during 2021, and slid lower during early 2022, as the EV bubble deflated. Even so, from mid-2022 through mid 2023, the stock managed to find a floor at around $5 per share. While investors had dialed back expectations, they were not exactly pessimistic about the future of the sector.

More recently, however, the latest news about the industry is arguably making the market more downbeat about EV stocks. Demand for electric vehicles is softening. Considering weakening demand, not to mention rising costs, automakers like Ford (NYSE:F) are scaling back their EV and EV battery production scale-up efforts.

Perhaps worst of all for QuantumScape, shifting sentiment may mean growing difficulty for early-stage EV companies to attract much-needed follow-on financing. Put it all sector-specific pessimism together, and it makes sense why this stock has kept sinking lower.

What Will Help Shift Sentiment Back

We’ve established how current sentiment for EV stocks may keep negatively affecting the performance of QS stock. Now, the question is what it will take to whet the market’s appetite for vehicle electrification plays once again.

Those most skeptical about the sector may argue that breakthroughs in EV battery range may be necessary to help shift sentiment for EV stocks once again. This suggests that a rebound for the sector is contingent on companies like QuantumScape (which is developing solid-state batteries offering greater range) making technological progress.

However, once economic issues like high inflation and high interest rates in the rearview mirror, this may be sufficient to drive a renaissance for EV stocks. Lower interest rates and improved overall economic conditions will likely revive EV demand. This should drive a comeback for shares in EV manufacturers, and shares in EV battery companies as well.

Having said all of this, even if a rising tide of enthusiasm could give QS a moderate boost, it may not be enough to send this stock back to double-digit prices.

The Bottom Line

Along with pushing EV stocks overall back up toward prior price levels, improved demand (driven by the receding of economic challenges) will also likely reduce current difficulties with EV company financing efforts.

That’s good news for QuantumScape. In October, the company reported that it had enough cash to keep the lights on until 2026, yet will probably need to raise more cash for its planned production ramp-up, once its solid-state EV batteries are ready for the road.

Until QS reaches development/production milestones, upside potential is minimal, while downside risk remains high.

Taking this into account, it may be best to keep waiting it out with QS stock. At least, until a greater margin of safety (such as the stock moving below book value) is baked into shares.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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