In terms of stock price action, electric vehicle stocks are in a phase of correction and consolidation. This includes some of the best battery stocks to buy and hold through the decade. However, in terms of EV penetration, it’s just the beginning of the growth story.
In 2021, global EV purchase was at 6.6 million. According to the World Economic Forum, two billion EVs need to be on road by 2050 for the world to hit net zero. The International Energy Agency points out that the annual EV battery demand in 2020 was 0.2TWH/hour. Annual EV battery demand is expected to swell to 3.3TWH/hour by 2030.
With manifold growth in battery demand, EV battery companies are poised for robust growth. Automakers are expected to spend $1.2 trillion between 2022 and 2030 on EVs, batteries and other raw materials. Clearly, the best part of growth is due. The correction in the industry, therefore, presents a golden opportunity to accumulate some of the best battery stocks.
Let’s discuss seven of the best battery stocks to buy at current levels.
Panasonic Holdings (OTCMKTS:PCRFY) has witnessed a 16% rally in the last month. The reason is the company’s revenue and earnings for Q2 2023 exceeded the guidance.
It’s worth noting that Panasonic has a 9.6% market share globally in the EV battery segment. Being among the market leaders, the stock remains attractive below $10 for long-term exposure.
Panasonic, a supplier to Tesla (NASDAQ:TSLA) seems to be in an aggressive expansion mode. The company is building a $4 billion battery factory in Kansas. In August, Panasonic announced another $4 billion investment for a second factory in Oklahoma.
Innovation is another big reason this is one of the best battery stocks is Panasonic is just behind Toyota (NYSE:TM) in the solid-state battery patents. The company is working on battery models that “boast the world’s highest level of energy density.” With investment in research and development, Panasonic can potentially gain market share in the coming years.
Solid Power (SLDP)
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Among innovators in the battery space, Solid Power (NASDAQ:SLDP) looks attractive at current levels of $5.6. Solid Power is currently in the development stage for the manufacture of solid-state battery cells.
Higher safety, longer range and extended life are the potential advantages offered by solid-state battery cells. A successful validation and commercialization scenario would imply multi-bagger returns.
In June, the company announced the installation of an EV cell pilot line. The pilot line has a capacity of 15,000 cells per year. Toward the end of the year, the company expects to deliver silicon EV cells to automotive partners. Validation testing by Ford (NYSE:F) and BMW (OTCMKTS:BMWYY) is the key stock upside catalyst.
Solid Power has also commenced the construction of an electrolyte production facility with production expected in Q1 2023. As of June, the company reported $534 million in cash.
Therefore, there is ample flexibility to invest in R&D and production. The backing of Ford and BMW provides additional financial cushion, making this one of the best battery stocks for the long haul.
QuantumScape Corporation (QS)
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QuantumScape (NYSE:QS) is another developer of solid-state lithium metal batteries that looks attractive. After a correction of almost 80% in the last 12 months, the stock seems to have bottomed out.
Amidst gloomy stock price action, business development has remained positive for QuantumScape. The company already has a strong automotive partner in the form of Volkswagen (OTCMKTS:VWAGY). In March, it was also reported that QuantumScape might be working with Porsche (OTCMKTS:POAHY) to integrate its solid-state batteries in future Porsche EVs.
It’s also worth noting that QuantumScape is looking beyond automotive to boost its addressable market. The company has already shipped single-layer pouch cells to consumer electronic companies. This can possibly be a $14 billion market by 2025.
QuantumScape is well-positioned from a financial perspective. The company expects to enter 2023 with more than $1 billion in liquidity. Therefore, there is ample flexibility to invest in research and development.
Lithium Americas (LAC)
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Given the expected demand for EV batteries, lithium is also an attractive investment theme for the coming years. Lithium Americas (NYSE:LAC) stock has trended higher by 23% in the last six months but still looks attractive from a valuation perspective.
Talking about lithium demand, the IEA believes that the world is likely to face a lithium shortage by 2025. Lithium miners are therefore positioned to benefit from higher production coupled with an increase in realized price.
Lithium Americas has 100% ownership in the U.S. asset that has a mine life of 46 years. The asset is likely to deliver an average annual EBITDA of $520 million. Further, the company has 44.8% stake in Cauchari-Olaroz assets in Argentina. Considering the stake, the asset is likely to contribute approximately $150 million to the company’s EBITDA.
Clearly, once these assets commence production, Lithium Americas is likely to see robust cash flows. As financial flexibility improves with internal cash flows, there will be scope for further expansion of assets.
Albemarle Corporation (ALB)
Albemarle Corporation (NYSE:ALB) is another high-quality lithium play that’s worth holding for the long term. At a forward price-earnings ratio of 13.5%, the stock looks attractive even after an upside of 30% in the last six months.
The company is on a high growth trajectory and for Q3 2022, sales growth was 152% on a year-on-year basis. For the same period, adjusted EBITDA surged by 447% to $1.2 billion. The lithium segment is the cash cow for the company.
It’s also worth noting that most of the lithium sales volume was under long-term contracts (typically two to five years). This provides clear cash flow visibility.
In February, Albemarle guided that lithium conversion capacity will increase to 200,000mt/year by 2025 from current levels of 88,000mt/year. With more than doubling capacity, the segment will continue to boost revenue growth.
ALB stock currently has a dividend yield of 0.55%. Considering the cash flow potential, it’s also a quality dividend growth stock for the portfolio.
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As a provider of battery solutions for electric vehicles, Microvast (NASDAQ:MVST) is another name among the best battery stocks.
Currently, Microvast manufactures battery components that include an aramid separator and gradient cathode. Additionally, the company provides customized battery solutions that include cells, modules and packs.
Even with the lockdown affecting the company’s main export hub in Shanghai, Microvast reported strong growth. For Q2 2022, revenue growth was 93% on a year-on-year basis to $64.4 million.
It’s also worth noting that for Q2, the company’s backlog was $105.3 million. On a year-on-year basis, the backlog has increased by 51.9%. If non-binding agreements are included, Microvast has contracted revenue of $2.5 billion through 2030. This is an encouraging sign and provides clear revenue visibility.
With the company expecting to add capacity in 2023, growth is likely to accelerate. This makes MVST stock attractive after a correction of almost 80% in the last 12 months.
On the flip side, the company’s operating level losses have widened. Dilution seems likely in the coming quarters to fund growth. However, this factor is discounted in the deep correction.
Ford Motor (F)
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Among traditional automakers, Ford has ambitious plans for portfolio transformation toward electric vehicles. This includes investment in EV batteries.
It’s worth noting that Ford already has an investment in Solid Power. This gives the company access to potential solid-state batteries in the coming years.
Additionally, Ford has formed a joint venture with SK Innovation. The JV will manufacture battery cells and arrays in the U.S. Of course, this is just the beginning in terms of investment in battery manufacturing.
Ford’s global plans for electric vehicles would require at least 240-gigawatt hours (GWh) of battery cell capacity by 2030. This would roughly imply 10 plants by the company’s estimates.
The good news is that Ford has the strong financial flexibility to make some big investments. Through 2025, the company has committed to invest $25 billion.
From a valuation perspective, F stock looks attractive at a forward price-earnings ratio of 6.9. If the company can execute the EV plan targets, multi-bagger returns are likely.
On the date of publication, Faisal Humayun 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.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.