What happened
Despite a jarring drop Thursday morning in response to its earnings report, QuantumScape (QS +2.30%) shares are having a solid overall run-up this week. The electric vehicle (EV) battery stock shot up 28.1% at its highest point in trading during the week, according to data provided by S&P Global Market Intelligence. Turns out that investors were hugely optimistic about QuantumScape ahead of its earnings release, and although some dumped the stock after earnings, some continue to bet on it.
So what
QuantumScape stock made a big move just ahead of its fourth-quarter earnings release after market close on Feb. 15. The stock had a brutal 2022, but expectations ran higher after the company shipped its first 24-layer prototype lithium battery cell samples to automakers for testing in December. Management even said this was the company's most important goal for 2022.
QuantumScape shares surged a whopping 50% in January, and the exuberance spilled over to February, especially with the company's earnings around the corner.
NASDAQ: QS
Key Data Points
QuantumScape's operating expenses mounted in the fourth quarter, and it reported a net loss of $0.25 per share versus a net loss of $0.16 per share in Q4 2021.
Importantly, the underlying tone of management's comments on sample testing didn't exude confidence. It said that while "most cells have performed well on initial testing," the company has identified areas to improve cell reliability as it advances from prototypes to commercial products. Put another way, it appears QuantumScape has a lot more work to do than earlier expected to reach the commercialization stage.
Management also said it is conserving cash and optimizing resources to extend its "runway given the macroeconomic environment." Again, that's a subtle hint at the challenges facing the company, especially in a rising interest rate environment. Developing factories and commercializing its solid-state battery technology will require a lot of cash, and it won't be easy if QuantumScape needs to raise money when interest rates are high and its stock price is trading at a fraction of the value it commanded in December 2020 right after it the company went public.
Now what
Given management's comments, QuantumScape stock may have likely ended the week on a somber note if not for the general investor interest in EV stocks that has picked up the slack this year. Two developments this week, in particular, helped lift some stocks from the industry.
First, the Biden administration announced the final rules for its planned network of 500,000 EV chargers this week. It is now expected to roll out the first tranche of $7.5 billion in funding that it outlined for the EV charging network last year under its Bipartisan Infrastructure Law. Second, Europe formally announced a ban on the sales of new petrol and diesel cars starting in 2035.
Risk-taking investors bet on QuantumScape stock this week, as they believe faster adoption of EVs worldwide should work in favor of a company with a promising solid-state battery technology, even though it is still far from commercialization and may not generate any revenue for at least another couple of years or so.
