Why QuantumScape Stock Short-Circuited Today

QuantumScape (NYSE: QS) stock stumbled in Monday morning trading after The Wall Street Journal reported that partner General Motors (NYSE: GM) is getting cold feet about the EV revolution.

Laws that promote electric vehicles and "emissions standards that are not aligned with market realities pose a serious threat to our business by undermining consumer choice and vehicle affordability," warns GM in an email to employees. Now, the automaker is lobbying to get EV-friendly legislation reversed.

GM's 180 has QuantumScape investors concerned: Shares of the battery research start-up were down by 13.7% as of 10:45 a.m. ET.

Image source: Getty Images.

What's GM up to?

In the article, the Wall Street Journal reported that GM "is racing to reverse the nation's most aggressive EV mandate" in California, and urging employees to call U.S. senators and press them to eliminate the long-established federal waiver that permits California to set its own emission standards. The Clean Air Act of 1970 also gives other states the right to adopt California's environmental standards, and numerous states have done so. Of particular concern to GM is a 2022 California law that will ban the sale of new gasoline-powered cars and trucks in the state by 2035.

GM itself has already failed to make good on its promise to build 400,000 EVs by mid-2024, and it's postponing the development of an electric Buick and the construction of an EV truck factory. Viewed in combination, none of this sounds like good news for GM and its partnership with QuantumScape to develop solid-state lithium-metal batteries for use in GM EVs.

Is QuantumScape stock a sell?

Mind you, just because GM has tapped the brakes on its EV plans doesn't mean it's abandoning them. A breakthrough in battery technology by QuantumScape could even change GM's plans again. But the battery specialist doesn't have much time to waste. Its cash reserves are down to $860 million, and it has been burning through cash at a rate of $330 million a year.

For QuantumScape, faster would be better. A slow-moving GM could be fatal to the company's prospects.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.