Stock Market

If you’re going to stay the course as an investor in electric vehicle (EV) battery manufacturer QuantumScape (NYSE:QS), ask yourself a question: What’s my time horizon? Then, consider your risk tolerance. Not everyone should own QS stock, but it’s a good buy for EV industry believers with a strong stomach for speculative assets.

There aren’t many pure-play solid-state lithium EV battery businesses on the New York Stock Exchange. If that’s what you’re in the market for, QuantumScape seems like an obvious choice.

Yet, there’s nothing really obvious about QuantumScape, as the company could be a hero or a zero in 2023. There are undeniable challenges that QuantumScape’s investors will have to deal with this year, but a set-it-and-forget-it stake could yield outstanding rewards in the long run.

What’s Happening With QS Stock?

After a bruising 2022, January of 2023 was stellar for QS stock. Amazingly, the QuantumScape share price rallied from $5.40 to $8.50 during that month.

It’s too early to know how February will shape up. January’s rally is notable, though, as QuantumScape didn’t seem to provide any significant press releases that month.

But then, vehicle electrification stocks did well overall in January as the market anticipated a slowdown in inflation this year. Plus, financial traders expected the U.S. Federal Reserve to eventually implement more accommodative monetary policy. These factors could certainly be conducive to an extended rally in a growth stock like QS stock.

It’s About the Battery Technology, Not the Financials

Some folks might object to QuantumScape’s early-year share-price rally because it’s a pre-revenue, pre-earnings company. However, let’s not miss the point here. This is a speculative company and a risky stock, and informed investors are fully aware of this.

That’s why appropriate position sizing is crucial. QuantumScape’s management has stated their expectation that the company’s battery production will begin by 2024. Furthermore, QuantumScape has already shipped its 24-layer prototype lithium-metal battery cell to automotive manufacturers.

If those automotive manufacturers choose to adopt QuantumScape’s best-in-class battery cell technology, QS stock could easily double, triple or more from its current price. At the same time, if perceived disinflation prompts the Federal Reserve to tap the brakes on interest rate hikes, the market could favor QuantumScape as it did in late 2020.

So, Is QS Stock a Good Buy?

Now, let’s get to the billion-dollar question: Is it appropriate to invest in QuantumScape now? The answer depends on your tolerance for risk. If your highest priority is safety and you can’t stand volatility, then the answer is no.

On the other hand, if you believe strongly in QuantumScape’s multi-layered battery cell technology, and if you’re ready for a bumpy ride in the near term, then QS stock is a good buy. At some point, QuantumScape might become not only profitable but also a capital-rich niche-market leader. If this happens, then QuantumScape’s early investors will be laughing all the way to the bank, while the bystanders will wish they had taken a position.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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