What happened
Investors in QuantumScape (QS +0.29%) must be having a really hard time, given the precipitous decline in the electric-vehicle (EV) battery stock. After a steep decline in December, QuantumScape stock has shed another 27% so far in January, with nearly all of those losses piling up this week alone. As of noon today, shares have plunged 21.9% through the week, according to data provided by S&P Global Market Intelligence.
So what
There's one big risk when you invest in start-up growth stocks: The market's sentiment can hugely influence which direction the stock goes, regardless of where the company's fundamentals stand. That's exactly what's happening with QuantumScape shares right now.
The company has made only one announcement so far in January. Late last week, it said it had a multiyear agreement with Fluence Energy (FLNC +7.42%) to incorporate QuantumScape's technology into Fluence's stationary energy-storage products.
Image source; Getty Images.
It's an interesting deal, as it signals QuantumScape's efforts to move beyond the EV market. BloombergNEF projects global energy-storage installations will grow more than 20-fold by 2030. That's massive, and as the industry grows, the preference for clean energy solutions will likely grow as well. QuantumScape says its battery cells, backed by its solid-state technology, can offer higher density and store energy more efficiently than traditional lithium-ion batteries.
QuantumScape's deal with Fluence, therefore, sounds promising, but why isn't the market impressed? In two words: electric vehicles.
So far, the market has pumped QuantumScape stock purely because it's a bet on the red-hot EV industry, with the company also signing agreements with three large global automakers, including Volkswagen (VWAGY 0.10%). QuantumScape's attempt to explore opportunities beyond the EV market, therefore, might not have gone down well with investors who have seen the stock as a pure play on EVs until now.
To top that, the pressure on growth stocks intensified this week ahead of the Federal Reserve's January meeting, based on greater expectations of early interest-rate increases. QuantumScape is still years away from commercial production, but its stock has generated a lot of interest thanks to the promising solid-state battery cells it's building to power EVs better than the lithium-ion batteries EVs currently run on. Any pressure on high-flying growth stocks, therefore, is bound to hit QuantumScape.
Now what
While it's true that QuantumScape is a risky and speculative stock given that it's an early-stage company that's still experimenting and testing products, its deal with Fluence is its first such non-automotive agreement. It might, therefore, be too early to read too much into it.
If QuantumScape's battery cells pass the test on Fluence's stationary storage products and the two companies seal a supply deal, it should only validate the battery technology. That said, QuantumScape still has a long way to go, and investors in the stock should be prepared to stomach volatility.
