What happened
On Monday, the markets are trying to digest the fallout from the collapse of Silicon Valley Bank, a subsidiary of SVB Financial Group. Battery maker QuantumScape (QS -6.93%) is tied to the story in two ways, one potentially bullish and the other bearish.
Investors aren't sure what to make of the situation right now, sending shares of QuantumScape down as much as 5.7% in early-morning trading before reversing course and sending the shares into the green by 11 a.m. ET.
So what
QuantumScape is working to commercialize a solid-state battery that would revolutionize the electric vehicle industry. If the chemistry works as the company hopes, future vehicles could store a lot more energy than current models and recharge much more quickly. But the technology is unproven at scale and QuantumScape is a pre-revenue company, making it a high-risk investment.
The company also had a relationship with SVB Financial subsidiary Silicon Valley Bank, the tech-focused lender that collapsed late last week. The company in a regulatory filing Friday said it kept "a low-single-digit percentage" of its total liquidity in the bank.
That exposure is unlikely to capsize QuantumScape, but in a market frozen with fear, the association with Silicon Valley Bank weighed heavily on QuantumScape shares at the open. Broader markets opened down on fears that the issues the bank faced will cascade through the economy, causing further disruption.
Now what
There is a second, perhaps bullish, theme coming out of the bank failure: Some investors have argued that the Silicon Valley Bank failure could cause the Federal Reserve to hold back on interest rate hikes. Given that the rise in rates have hit speculative investments like QuantumScape harder than most, there is at least reason for hope that a reluctant Fed would be good news for tech investors.
It is possible that the Fed will be more cautious after this weekend, and also possible that will be good in the near term for stocks like QuantumScape. But investors would be wise not to be too clever for their own good. Short-term stock movements are notoriously hard to predict.
No matter what the Fed does from here, the bottom line is that QuantumScape is a company with an intriguing product but that's in the very early stages of development. It will be years before we know if its batteries are commercially viable. For long-term investors, it is best to ignore speculation over what a Bay Area bank failure might mean for an auto stock.
