2 Stocks Beyond Tesla (TSLA) for Battery Day

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Happy Battery Day! That is not a phrase I ever thought I would say or write. I mean, who thought that the humble battery, so inconsequential in the past as to be “not included” in almost every gift ever given to children, would have its very own day? In case you missed it, though, today is Battery Day, at least according to Tesla (TSLA) Founder and Chair, Elon Musk. And, as a lot of short sellers have found out to their cost over the years, if Musk says it, we should all pay attention.

Of course, the purpose of the day is not to celebrate AAs and Ds from Duracell and Energizer. It is an opportunity for Tesla to tell us about their innovations and plans in the vehicle battery space, a field in which advances are needed if Teslas, and electric vehicles (EVs) in general, are to be competitive in price with conventionally powered vehicles.

The cost of batteries is an important component of the overall cost of EVs. It has fallen rapidly over the last few years but is still relatively high. According to Cairn Energy Research Advisors, quoted here, Tesla’s costs currently run at $156 per kWh, the cheapest in the industry by some way, but still almost double where they would need to be to be price competitive with internal combustion engines.

So, when Elon Musk announced Battery Day and began, as he is wont to do, dropping hints that it would include a major reveal, investors got understandably excited. In a tweet yesterday, though, Musk poured a little cold water on the speculation, pointing out that any announcement made today would be about the future, and that benefits of whatever it is probably wouldn’t be seen until 2022 at least.

Therein lies one of the major problems faced by EV companies. Price is an issue, but as production of batteries increases, the rules of supply and demand should take care of that. The problem is that as of right now, demand is way ahead of supply and building that new capacity is taking time. From an investment perspective, it therefore makes sense to look at companies that either have production capacity now or are further along in the process of building or acquiring it.

Needless to say, the obvious battery buy here is Tesla. But what if you are looking beyond TSLA and want to diversify your investments in this space?

The two largest existing players both present problems for U.S. investors. The Chinese company CATL and LG Chemicals are both only available on their local exchanges which introduces some risks that cloud the equation. Ironically, that means that some of the best investments in the space -- other than Tesla itself -- are two of TSLA's main competitors in differing areas.

The first would be Panasonic (ADR: PCRFY). They are already a supplier to TSLA, so might be expected to come under pressure if Musk does announce a revolutionary breakthrough in either battery technology or the production capacity of his company. However, Musk has tweeted that purchases from existing suppliers will continue to grow for some time so that isn’t a concern for a while.

The second is GM (GM). Yes, I know, they are the poster child for the old way -- for gas-guzzling internal combustion cars. That said, they have shown an increasing focus on EVs. So much so that they are currently in partnership with LG, building a battery plant of their own.

Of course, the simplest way to invest in the future dominance of EVs is to buy the dominant company in the EV space, TSLA itself. Some, however, may be put off by the high P/E multiples or may have already done that and be looking for some diversification. For those investors, while neither Panasonic nor GM are pure plays on batteries, both are positioned to benefit as demand continues to outstrip supply, so both offer an alternative way of celebrating Battery Day with a stock purchase.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Martin Tillier

Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.

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