What happened

Shares of QuantumScape (QS 3.80%), a developer of solid-state batteries for electric vehicles (EVs), plunged 29.1% in May, according to data from S&P Global Market Intelligence. The stock had traded as high as $132 per share back in December, but ran into problems in 2021 as investors soured on speculative stocks with minimal or no revenue. It took a vicious hit back in April, when activist short-seller Scorpion Capital called QuantumScape a "pump and dump" scam.

In May, QuantumScape's stock fell further. Several analysts lowered their price targets following the company's first-quarter earnings report, and later in the month, Ford Motor Company (F -0.12%) announced it would work on its own solid-state battery with a QuantumScape rival.

A luminescent blue light from an electric car charger charging an EV.

Image source: Getty Images.

So what

Although management reported solid progress on its battery development in its first-quarter earnings report, the market was not in a forgiving mood. Everyone knows QuantumScape is a pre-revenue company, but management announced a $30 million increase to its 2021 capital spending plans, to a midpoint of $290 million this year, which might have soured some investors. Several analysts lowered their price targets on the stock after earnings, although this was mostly due to lower market multiples for high-growth, profitless stocks.

Fears over inflation also struck in May, as the Bureau of Labor Statistics report for April came out, showing higher-than-expected inflation as the economy reopened, so that likely played a role as well. Inflation could lead to higher interest rates, which tend to make investors gravitate away from growth stocks and more toward value stocks.

Finally, at the end of the month, Ford announced it would be boosting its stake in Solid Power, a QuantumScape rival, while also saying it would look to increase its own in-house cell production. A strengthened competitor also likely dampened enthusiasm for QuantumScape's stock.

Now what

Even after its near-80% plunge from December highs, QuantumScape still has an $11.5 billion market cap but earns no revenue, and its technology isn't entirely proven. So while some might think this beaten-down EV play could be a bargain right now, it's still not exactly cheap.  

Basically, QuantumScape stock is still incredibly risky, even when compared with other EV-related stocks. If solid-state battery technology proves out and dominates the EV space, the company could win big. But that is far from assured, and even if success occurs, it won't happen until the middle or later part of the decade.

QuantumScape is only appropriate for the most speculative investors, or those with unique insight into solid-state battery technology.