Bullish on QS Stock? Wait for This to Happen First

Thomas Niel

Wed, Nov 22, 2023, 5:15 AM 4 min read

In prior coverage of QuantumScape (NYSE:QS), I have laid out a cut-and-dry bear case for the EV battery developer’s shares. QS stock is not worth the risk due to uncertainty in executing its business plan, high cash burn, shareholder dilution, and competition from other battery developers. That said, I agree that there is validity to the QS bull case.

Macro and company-related factors could lead to a major rebound for shares in 2024. Yet, even if you want to place a wager on a QuantumScape comeback, that doesn’t mean you should lock down a position as soon as possible. An event in the coming weeks may negatively affect shares.

How QS Stock Could Re-Enter Winning Mode in 2024

The numerous factors cited in my bear case for QuantumScape may lead to a downward spiral for the stock over the next twelve months. However, it’s not set in stone that more pain lies ahead. There’s still a chance shares re-enter winning mode instead during 2024.

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Promising news regarding its customer prototype, the announcement of new strategic partnerships with automakers, and more details on QuantumScape’s manufacturing scale up efforts are examples of company-related announcements/developments that could help shift sentiment for QS stock back to bullish.

That’s not all. There is also a macro-related factor that could provide a lift for shares. Although the market has become more skeptical about a “pivot” on interest rates by the Federal Reserve in 2024, analysts at UBS believes rate cuts totaling 275 basis points (2.75%) are coming next year, as the U.S. economy slows down considerably, and the Fed reverts to “full-on accommodation.”

Speculative growth stocks tumble when rates soar, but can make outsized gains when interest rates are aggressively lowered. A lowering of interest rates would also help re-strengthen softening EV demand. Weak EV demand trends is something else that has weighed on EV and EV-related stocks this year.

Still, Another Pullback May Happen First

A liftoff for QS stock may be within the realm of possibility in 2024, but before we close the books on 2023, another moderate sell-off/pullback may be in store. As you may guessed already, the “event” I spoke of above is tax-loss harvesting season.

This is when investors realize capital losses, in order to offset any taxable capital gains realized throughout the year.

Yes, with QuantumScape technically up year-to-date, you may think that not a lot of tax-loss harvesting with QS will transpire over the next month. Yet while the stock may be up on a year-to-date basis, frequently this year, many investors jumped back into shares, at considerably higher prices.

While some of these investors may have already taken the loss, other investors may have held on, hoping the stock would experience another spike, driven by a short-squeeze, or from big positive surprises in the company’s quarterly earnings release last month.

If these investors decide to realize losses now, with plans to re-enter the stock after 30 days (in order to stay compliant with the IRS’s “wash sale” rule on capital losses), this may drive another short-term move lower for QS.

Bottom Line: Even if Bullish, Wait at Least a Month Before Buying

Much may suggest QS skeptics like myself will be proven wrong in 2024. This stock could avoid making a full move into the “EV stock junkyard” next year. Even if you’re bullish this will happen, however, there’s no need to rush into a position.

During December 2022, from the first trading day to the last trading day, QS dropped by around 23.6%. Although perhaps not the sole reason, tax-loss harvesting likely had a lot to do with this double-digit price decline.

As December 2023 approaches, err on the side of caution. Tax-loss harvesting may end up pushing this stock back down towards its 52-week low (just under $5 per share).

Hence, consider it best to let this seasonal stock market event come and go. Wait until late December, or even the first trading day of 2024, before making a wager on QS stock.

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.