What happened
Shares of electric-vehicle battery start-up QuantumScape (QS 3.27%) were trading lower today, amid a wider sell-off of emerging companies in the electric-vehicle space. As of 1:45 p.m. EST, QuantumScape's shares were down about 12.75% from Monday's closing price.
So what
QuantumScape is what we might call a "moonshot" stock. The company has no significant revenue and doesn't expect any for at least a few years -- but it has some groundbreaking new technology that might lead to much improved batteries for electric vehicles.
One key to QuantumScape's technology is a new flexible ceramic material that could make solid-state batteries workable for electric cars. Image source: QuantumScape.
The details are complicated, but for our purposes, the thing to keep in mind is that this a speculative stock. It might be huge in 10 years or not be around at all.
That's important because what seems to be happening in the broader market on Tuesday is a lot of so-called "risk-off" trading. Congress is debating a $1.9 trillion COVID-19 relief package, which has raised inflation concerns in some quarters. Whether those concerns are valid or not, the benchmark U.S. 10-year Treasury rate has been rising recently. It's now close to a one-year high.
When interest rates are rising, investors often look to reduce portfolio volatility. That can mean selling down their most speculative holdings, like (for instance) stocks of electric-vehicle companies with little or no current revenue.
That's probably a big factor in what's happening in the U.S. markets today, and probably a big factor in QuantumScape's downward move.
Now what
The thing to keep in mind is that nothing has changed with respect to QuantumScape itself, which just last week gave a promising update on its progress toward mass-produced solid-state batteries. It's still led by the same impressive management team, Volkswagen is still a long-term strategic partner, and it's on course to begin manufacturing its innovative batteries in 2024. It's still a high-risk, high-potential-reward investment.
Put another way, for long-term investors who liked QuantumScape before this sell-off, this may be a buying opportunity.
