What happened
Some electric vehicle (EV) sector stocks blasted higher in July. But investors took some profits, giving others an education on owning these volatile names. Solid-state battery maker QuantumScape (QS) led the way with a 67% gain in July, according to data provided by S&P Global Market Intelligence.
Chinese EV makers Nio (NIO) and XPeng (XPEV) weren't far behind with increases of 58% and 56%, respectively, for last month. While the Chinese stocks gave back some of those hefty gains, QuantumScape shareholders have seen the entire July rise erased in just the first week of August. There's a good lesson for investors in all of that volatility.
So what
There were real and fundamental reasons why investors pushed shares of these companies sharply higher last month. QuantumScape updated investors on positive progress toward commercialization of its technology, XPeng announced a surprise new partnership with global automaker Volkswagen, and Nio returned to strong sales growth with signs that indicate that can continue.
Now what
When QuantumScape updated investors with its second-quarter report in late July, the company said it has now shipped unit cells to several potential automotive customers that included the design parameters required for its intended commercialization. If it holds to its current timeline for commercialization by 2026, the company could have a one- or two-year lead on larger competitors that are also working on solid-state EV battery technologies.
QuantumScape had about $900 million in liquidity at the end of the second quarter, which it believed would fund its needs into the second half of 2025. But at the start of August, it announced it would be selling shares to raise additional capital. That was the catalyst that erased its July stock gains.
Ironically, that news was likely a very positive development as management sought to take advantage of a stock price that is still 40% higher than where it began 2023. It will help the company raise about $300 million that it could need to reach the point where it begins commercial sales. But it should also be a lesson for investors that in pre-revenue growth companies, there will be much volatility in the stock itself as investors weigh the potential risks of failure.
That's one difference between QuantumScape and the Chinese EV makers Nio and XPeng. The latter two are growing sales and revenue, so have established businesses. Volkswagen took notice and decided to take a minority 5% stake in XPeng with an initial $700 million investment.
That investment gave new credibility to XPeng and its technologies. The companies also hope to collaborate on future EV platforms, software, and supply chain efficiencies. They also plan to share smart EV technologies moving forward.
For its part, Nio broke a streak of three consecutive months of declining vehicle deliveries in June and then blew out its previous monthly record in July. It was the first month that Nio delivered more than 20,000 vehicles. It was also the first time the company sold more than 10,000 units of a single model in a month. That model was Nio's newest smart SUV, the ES6.
Investors rewarded both Chinese EV makers in July and those gains have largely held. They remain risky stocks, though, and investors need to keep speculative investments such as these in perspective by only allocating proper amounts of capital.
