Stock Market

As discussed in my last article on QuantumScape (NYSE:QS) stock, electric vehicle stocks began to rally at the start of July, on the heels of Tesla’s (NASDAQ:TSLA) latest delivery numbers.

The TSLA rally has stalled, but interestingly enough, more speculative EV plays keep climbing. QS stock is no exception.

Other early-stage EV names, like Lucid Group (NASDAQ:LCID) or Rivian Automotive (NASDAQ:RIVN), for instance, could continue to climb in price (at least in the near-term). Still, it may prove difficult for shares in this EV battery technology company to do the same.

At least, given that QuantumScape is just a few weeks away from releasing its latest quarterly results.

Based on the market’s response to prior earnings releases, it’s tough to be confident that it will surge further rather than reverse course post-earnings.

Why Upcoming Earnings are a Big Event

While QuantumScape has not yet set a date, the company will release its results for Q2 2023 (ending June 30, 2023) sometime around July 27. As a pre-revenue company, the focus of this release won’t be on QS’s results themselves.

Rather, investors will re-assess the current value of QS stock, based upon the updates management provides regarding its efforts to bring solid-state batteries to market. SSBs are safer, cheaper, and can charge considerably faster than the batteries currently in use today, according to the company.

There is, however, a challenge. Figuring out how to produce SSBs on a large scale remains a work-in-progress.

Hence, with the upcoming quarterly earnings release/company update, investors will be looking for signs that QuantumScape is getting closer to achieving this, and therefore closer to the commercialization stage.

The above-mentioned investor presentation rehashes news about the company. QuantumScape’s timeline to commercialization remains vague. Although in theory it’s possible that the battery upstart reveals some game-changing news as soon as later this month, a look at past releases suggests yet another round of disappointment ahead.

Count on a Post-Earnings Plunge

The last two quarterly earnings releases for QuantumScape occurred on April 26 and Feb. 15, respectively. Both times, QS stock experienced a drop in price following the release.

While the April post-earnings plunge was only moderate in intensity, the February decline, which briefly started off as a post-earnings spike, turned into a severe decline for shares.

Based on its recent price action, the stock may perform similarly to what transpired five months back. In the immediate term, QS may keep climbing (albeit more gradually) between now and the next earnings report.

This could be because of rising bullishness about EV stocks, or from renewed speculation about a QS short squeeze.

When the latest about the company’s SSB development efforts are revealed, the rally could come to a screeching halt.

Doubts about the company’s commercialization potential may again re-emerge. The only way I don’t see this happen is if there is any sort of unexpected positive development unveiled.

For instance, if QuantumScape provides a definitive production timeline far shorter than current expectations. Assuming this fails to happen, QS post-earnings could give back its latest gains almost as quickly as it accumulated them.

Bottom Line: Don’t Chase the Rally

Sure, despite the concerns listed above, you may still be tempted to pursue this stock as a short-term trade. Ride the current wave until just before the earnings report.

However, keep in mind that there’s another way this rally could reverse course, irrespective of the forthcoming round of major company-related news.

EV stocks this month have been rising in large part due to the Tesla news, but the cycling-back into speculative growth stocks since May (due to rising hopes that inflation/interest rate issues are easing) has also been a factor.

This could soon change, though. If upcoming inflation data indicates the Federal Reserve is likely still far from being ready to pause or pivot on rate hikes, speculative growth stocks may sell off once again.

With company and macro-related risks in mind, err on the side of caution. Don’t chase the QS stock rally.

On the date of publication, Thomas Niel did not hold (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.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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