Why QuantumScape Stock Is Plunging This Week Even After Good News for Investors

Key Points

• QuantumScape announced an expanded licensing agreement this week.

• The deal could provide more than $130 million to QuantumScape over the next two years.

• That gives it a boost toward commercializing its solid-state EV battery technology.

• 10 stocks we like better than QuantumScape ›

QuantumScape (NYSE: QS) shares have plunged this week. The developer of efficient solid-state electric vehicle (EV) batteries gave investors its quarterly financial and operational update on Wednesday with one positive surprise.

Yet shares have still dropped by about 22% this week as of Friday morning, according to data provided by S&P Global Market Intelligence. Investors looking at the big picture might have a different perspective, however.

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Image source: QuantumScape.

QuantumScape's gaining momentum

QuantumScape could be on the verge of revolutionizing the way consumers view electric vehicles. Last month it announced a major development milestone with scaled-up production capabilities from the successful factory integration of an advanced production process. Manufacturing at scale could provide EV buyers with faster charging, more efficient batteries that extend driving range on a single charge.

That led to a soaring stock price. Shares have jumped over 160% in the last month, even with this week's slump. The recent move substantially higher explains the drop in the stock this week. Investors had already responded to the recent good news.

Yet there was more positive news from this week's quarterly report. QuantumScape announced an expansion to an existing collaboration with PowerCo, the battery subsidiary of Volkswagen. The deal will see PowerCo more than double a previously announced $130 million investment to accelerate the commercialization of QuantumScape's battery technology.

Multiple risks remain

That influx of fresh capital over the next two years will help QuantumScape extend its cash buffer into 2029. That represents an additional six months of financing capabilities, according to management.

Investing in QuantumScape now still carries large risks, though. Competitors already exist in the solid-state battery space. Production capabilities still need to be proven out. And the EV market needs to continue to grow.

With that said, the company has huge potential if it is one of the first to market with a successful solid-state battery technology. Even considering the risks, investing in QuantumScape today could provide market-beating returns. Investors should allocate properly considering the risks, however.

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Howard Smith has positions in QuantumScape. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.