QuantumScape (ticker: QS) started 2021 by dropping from more than $84 per share to less than $50 in just one trading session. Its market capitalization, based on about 448 million fully diluted shares outstanding, fell from almost $38 billion to a little more than $22 billion.
Company CEO Jagdeep Singh appeared on CNBC Monday evening, and the topic of the steep stock decline came up. And while Singh didn’t pinpoint one single reason for the drop, his comments were reasonable. “We can’t predict short-term stock market volatility,” he said, but he believes not a lot has changed for the company. Quantum presented what he believes is strong technical data in December. And he noted that risks remain in the commercialization and manufacturing of QuantumScape’s new solid-state rechargeable EV battery technology.
Singh also mentioned that the company’s registration statement became effective in late December. Typically, that isn’t an event that requires regular investors to pay much attention. But registration effectiveness does free up some stock to be sold, and that can be one reason for a selloff.
Still, that may not explain the staggering pace of the decline. For starters, the stock now available for sale is held by mainly early investors and institutions. They have made money in Quantum shares, but are also longer-term holders. What’s more, the vast majority of stock is still locked up, held by company insiders. Those lockups won’t expire until May.
What’s more, warrants issued as part of the SPAC merger aren’t exercisable until midyear. Warrants that give holders the right to buy a stock for a fixed price—$11.50 in Quantum’s case—are a common feature of SPAC transactions, the kind Quantum used to become a publicly traded company. With Quantum stock at about $50, there is a potential profit for warrant holders. Quantum warrants are trading for about $27.
“At the end of the day supply and demand have to come into balance,” added Singh. Barron’s suggested Monday people were taking some money off the table after making a huge profit late in 2020. That is still our best guess.
If Quantum can deliver its technology to real cars driving on real roads, a lot of value will be created. It is up to investors to decide what to pay for that.
Write to Al Root at email@example.com