A wave of anxiety and volatility has hit the stock market this week amid uncertainty related to the omicron COVID-19 variant, the economic recovery, and the possibility that the Federal Reserve will start boosting benchmark interest rates in an effort to combat inflation. Growth-focused investors typically get hit hard in sell-offs, as speculative stocks lead the declines. That pattern held this week as many businesses in and related to the electric vehicle (EV) industry took outsized declines. Among them were solid-state battery company QuantumScape (QS 3.20%), EV charging network operator EVgo (EVGO 3.23%), and start-up EV maker Arrival (ARVL). As of midday Friday, these stocks had declined as follows from last week's closing prices:
- QuantumScape was down 18.8%;
- EVgo was down 18.3%;
- Arrival was down 19%.
Demand for electric vehicles is still expected to soar in the coming years and decades, but these stocks are valued speculatively, based on expected future business results. And for now, the prospect of persistent inflation creates more uncertainty for this type of stock, as it requires investors to revalue those hoped-for future profits. But the prospects for these businesses still should be evaluated individually.
Of these three companies, QuantumScape is the furthest from commercializing a product. In fact, it might find that its next-generation solid-state battery technology fails on the level required for powering electric vehicles. The company doesn't expect to have a product commercially available until 2024, but it has recently reported that progress on battery development is ahead of schedule.
In July, QuantumScape said it had successfully produced, and was testing, its first 10-layer battery cells. This is the level needed to produce a commercially viable product. The company then announced in November that cycle and temperature tests had achieved the goals management had set for 2021. According to the company, its next steps will include "further increasing the quality, consistency and layer counts for the cells, delivering customer prototypes and continuing to build out its QS-0 pre-pilot production line."
EVgo similarly has been making progress on its growth plans. It recently announced that it had expanded its partnership with General Motors. Through 2025, the two companies now plan to deploy 3,250 charging stalls with EVgo's fast charging technology. That's up from their previous target of 2,750, and they have expanded the number of metropolitan areas to be included.
But Arrival's story hasn't been as positive. In its third-quarter financial update, management told investors it was revising its planned production schedule due to issues with accessing capital. The company warned that "previous long-term forecasts from the [SPAC] merger should no longer be relied upon." Soon after that, Arrival announced it would be raising additional capital through a pair of debt and stock offerings.
High volatility should be expected from early-stage growth companies, and that's particularly the case in a sector like the electric vehicle space. This week's market jitters hit these stocks especially hard, but investors should do their best to look past the short-term market noise and continue to focus on the underlying businesses.