What happened
Today, the stock market is reversing what had been a strong past week. Just as they had been leading the way higher over the last week, many speculative growth stocks are underperforming to the downside today. That includes electric vehicle (EV) sector names QuantumScape (QS 0.99%), Lucid Group (LCID +2.48%), and Blink Charging (BLNK +4.74%).
NASDAQ: QS
Key Data Points
These stocks were down between 5% and 7% in early trading on Tuesday, and QuantumScape was still down by 2.9% as of 10:40 a.m. ET. Lucid and Blink had also recovered from the morning's lows but remained 1.1% and 4.1% lower, respectively.
So what
That's a big change from the surge these stocks experienced over the last five trading days. Even with today's dips, the stocks have surged between 10% and 15% over the last week. Today's reversal comes from a combination of the inflation data that came out today and these companies' specific business situations. With the outlook for the Federal Reserve to continue being aggressive in raising interest rates, it makes the prospects that much worse for growth stocks that need to raise capital to build their businesses.
NASDAQ: LCID
Key Data Points
Lucid, for example, said two weeks ago that it plans to raise up to $8 billion in several offerings over the next three years. The costs of raising that capital likely just increased, and today's stock move reflects investors' awareness of that.
Now what
Consumer prices climbed at an 8.3% annual pace last month, higher than expected. The details behind this, including the key core inflation metric, imply that the Fed will push forward in its quest to slow growth and tame inflation. That matters to companies like QuantumScape, Lucid, and Blink, which are squarely in growth mode and don't yet earn profits.
It's also important to look at where these underlying businesses are in their growth path. Some of the previously mentioned double-digit gains for Lucid over the past week, for example, came from speculation that the company was quickly ramping up its EV production. While that would be a reasonable catalyst for investors to decide to buy into the stock, the speculation wasn't something that came directly from the company.
NASDAQ: BLNK
Key Data Points
What we know for sure about each of these companies is that they remain speculative investments. Lucid slashed its projection for 2022 vehicle production by 50% in an update last month. The company only sees 6,000 to 7,000 of its luxury electric sedans being produced this year. That compares to an initial projection of 20,000 that has been lowered twice. Supply chain headwinds and raw material costs are to blame.
Supply chain constraints also contributed to why QuantumScape pushed the potential start of production for its solid-state batteries out from 2024 to 2025. It's conceivable that the company will want to raise capital even after it starts commercial production, too.
Investing in these names should be done in the speculative portion of a portfolio. These stocks are priced for the potential of their technologies and growing markets. QuantumScape shares also recently spiked on the back of hopeful signs for its eventual market demand.
For those with long-enough time horizons and appropriate risk tolerance, moves based on macro news like today could be looked at as a time to buy. But only with the knowledge that those investments, and these businesses, might fail.
