If you’re a long-term investor in electric vehicle (EV) battery technology company QuantumScape (NYSE:QS), you probably felt a sense of relief when QS stock rallied recently. However, I’m advising extreme caution. This may just be a “bull trap,” and QuantumScape’s loyal shareholders could easily lose their gains soon.
Not long ago, Wolfe Research analyst Rod Lache set a price target of $2 on QuantumScape shares. I tend to agree with Lache’s pessimistic outlook. Lache stated his concerns about QuantumScape’s “long path to commercialization, as well as the speculative nature of its battery technology breakthroughs.”
Despite QuantumScape’s challenges, QS stock will pop from time to time. Don’t get trapped, though, as an investment in QuantumScape will likely bring disappointment, not profits.
Why QS Stock Rallied
One of the most frustrating things about QuantumScape is its infrequency of operational updates. Day after day will pass without any material updates on QuantumScape’s press releases page.
Nevertheless, QS stock spiked from around $6 on June 9 to nearly $8 a week later before coughing up some of those gains. Again, this occurred despite the lack of any press releases from QuantumScape.
It might sound harsh to call this a “sucker’s rally.” Yet, I suspect that it’s just a typical share-price variation within a long-term downtrend. After all, stocks don’t just go straight down.
Besides, the first half of June was marked by general investor rotation into risk-on assets and especially technology-related stocks. As I see it, a rising tide lifts all boats, but there’s a limit to this principle. Until QuantumScape actually commercializes its products, don’t expect broad-market risk-on sentiment to carry QS higher.
QuantumScape Has a Famous Rival
I hate to break the news to QuantumScape’s shareholders, but there’s a well-known Asian company that’s currently developing solid-state batteries for battery electric vehicles (BEVs). I’m referring to famous automaker Toyota Motor (NYSE:TM).
QuantumScape’s progress in moving its battery cells to the commercialization stage has been painfully slow. Meanwhile, Toyota is ambitiously advancing its own solid-state batteries for BEVs. These, reportedly, will be “good, low-cost batteries that will contribute to the spread and expansion of BEVs to provide customers with a variety of choices in batteries.”
Featuring a “bipolar structure,” Toyota’s solid-state batteries will use “inexpensive lithium iron phosphate (LFP) as a material.” Toyota expects this product to “be put to practical use in 2026-2027.”
If Toyota succeeds with its solid-state battery ambitions, this product will offer increased driving range, quick charging and reduced costs. So, QuantumScape had better commercialize its battery cells soon — and they’ll need to be superior to whatever Toyota comes up with.
Don’t Get Caught in a Trap With QS Stock
A year or two ago, QuantumScape was a much more promising startup business. However, QuantumScape has been annoyingly slow to provide material updates.
Now, we’re finding out that QuantumScape will have a major rival to contend with. That’s another issue for QS stock traders to consider.
So, even if the share price jumps from time to time, don’t get caught in a trap. Over the long run, QuantumScape’s shareholders will probably only lose their short-term gains, and then some.
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.