What happened

Shares of QuantumScape (NYSE:QS) fell 48.2% in January, according to data provided by S&P Global Market Intelligence, basically giving back the stock's gains from December. But investors who have held QuantumScape stock since the company first became public in November shouldn't be too upset: They have still almost doubled their money in a very short amount of time.

QS Chart

QS data by YCharts

So what

QuantumScape has experienced more drama in a matter of months than most stocks experience in a year. The company is developing a solid-state lithium-metal battery that in theory would be a massive upgrade over the lithium-ion batteries now used by automakers, offering greater energy storage, lower costs, and better stability.

The company joined public markets in November via a merger with a special purpose acquisition company, or SPAC, at a moment when investors couldn't get enough of SPAC stocks.

Engineers circle a car design.

Image source: Getty Images.

We said in early January that the stock's run was likely unsustainable, and indeed QuantumScape came back down to Earth quite a bit in the first month of 2021. This is still a company with a lot of promise, but it is going to take years for that promise to translate into profits. At its peak, QuantumScape was valued higher than Ford Motor Company, so the January swoon shouldn't be much of a surprise.

Now what

For all the volatility in the stock, the investment case for QuantumScape has not changed much in the months since it first landed on public investors' radars. There's a lot to like about this company, including its partnership with shareholder Volkswagen, which figures to be a key customer assuming QuantumScape batteries are as good as the hype.

The important thing to remember, however, is that questions about whether the product is viable and can be produced at scale at a market-competitive cost are still unanswered. This company could end up a roaring success, or it could amount to nothing, and we won't know for years.

Even after the January fall, QuantumScape is still a $15 billion company. Investors who are intrigued by its promise should limit the stock to a small piece of a well-diversified portfolio, and understand that even if the stock is more affordable now than it was in December, it could still fall further in the months to come.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.