What happened
Electric vehicle (EV) battery company QuantumScape (QS -1.65%) got a boost this week thanks to the Federal Reserve.
On Wednesday the Fed increased interest rates by just 25 basis points in response to elevated, but slowing, inflation. That sent many stocks rising and pushed QuantumScape up 11.3% this week, according to data from S&P Global Market Intelligence.
So what
Electric vehicle stocks have been plummeting over the past year as investors have become worried about a potential recession. And rising interest rates have put pressure on the EV market, raising the cost of buying a new vehicles at a time when inflation is already high.
While QuantumScape isn't yet directly affected by rising electric vehicle prices -- the company just began shipping battery prototypes to customers in December -- its stock price is still affected by the broader industry's share price moves.
That's why its share price rose when the Fed increased rates by only 25 basis points earlier this week. That increase was much lower than the previous six rate hikes over the past year.
QuantumScape investors responded positively to the news because they're hoping that a lower rate increase is an indication that the Fed is less worried about inflation growth than before.
After a dismal year in the market in 2022, investors are happy to take any positive news about the economy and inflation that they can get.
Now what
This week's share price jump still hasn't helped QuantumScape's massive drop of 41% over the past year -- and there's some reason to be skeptical about the company right now.
QuantumScape just delivered prototype batteries to some of its customers two months ago and is still deeply unprofitable.
QuantumScape's non-GAAP (adjusted) loss of $0.27 in the third quarter was worse than its loss of $0.13 in the year-ago quarter. Investors will get more insights into how the company is doing financially when it reports its fourth-quarter results on Feb. 15.
Making matters worse for the company right now is the fact that the EV market likely has a rough road ahead in the coming quarters if a potential recession materializes.
