Why QuantumScape, Freyr, and Plug Power Stocks Just Dropped

What happened

It’s a miserable morning on the Nasdaq as the tech-heavy index tumbled 2% through 10:20 a.m. ET Wednesday. Unfortunately for renewable energy investors, their stocks are taking some of the worst damage — and a note from investment bank Morgan Stanley is one reason.

QuantumScape (QS 1.08%), which is developing a solid-state battery for powering electric vehicles (EVs), was down 5.1%, and lithium-ion battery manufacturer Freyr Battery (FREY -11.31%) was doing even worse, down 13.9%. Hydrogen fuel cell pioneer Plug Power (PLUG -2.33%) isn’t looking too healthy this morning, either (albeit for different reasons), as its stock tumbled 7%.

So what

So what’s ailing EV stocks this morning? Morgan Stanley seems to be the start of their troubles. Ratings-watcher The Fly is reporting that it downgraded Freyr this morning to equal weight (hold), while cutting its price target on the battery stock in half to $13 a share. The bank also cut its price target on QuantumScape — which was already rated underweight (sell) — by 25%, to $3 a share.  

The cuts to price targets (and to Freyr’s overall rating) come in response to a broader shake-out of EV stocks that Morgan Stanley is seeing, and are part of a “reset” of valuations in the sector. Urging investors to reduce their exposure to EV stocks in general, the bank said investors might begin to lose patience with companies that can’t deliver products to market quickly.

This could be bad news for QuantumScape, which has yet to generate any revenue and isn’t expected to have products ready for market before about 2026.

Freyr’s position is a bit better than that: It began generating revenue last year, and could be bringing in hundreds of millions of dollars in sales by 2024. Actual profits, however, still aren’t expected to arrive before 2031, according to estimates collected by S&P Global Market Intelligence. And that might be too long to ask investors to wait.

Now what

So much for the battery companies. But what about Plug Power, which focuses its renewable energy efforts in a slightly different direction? It runs hydrogen through proton exchange membranes to generate electricity to power vehicles.

Morgan Stanley didn’t mention Plug today. But the company itself was expected to make some announcements later Wednesday when it gives its annual business update after close of trading on the Nasdaq.

Plug didn’t drop any hints about what it will reveal when announcing the event last week. Regardless, Wall Street is optimistic that Plug will more than double its sales in the current quarter, and grow sales 80% next quarter — all while cutting its losses.  

Longer term, sales are expected to hit $825 million this year, then grow 66% to $1.4 billion next year, en route to $5 billion by 2030.

All of the above sounds like good news, and not a good reason for Plug Power stock to be selling off ahead of the update. Investors could be selling the stock now in order to prepare for a disappointment.

But I think that’s a mistake: 2030 is a long time away, and there’s little reason for Plug to lower expectations this evening, for something that might or might not happen seven years from now.

My hunch: Plug’s pronouncements will be properly optimistic this evening, and any losses the stock takes today will be quickly recovered Thursday morning.

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