by Jeff Reeves | October 22, 2013 8:56 am
Tesla (TSLA) has rewritten the rules of momentum stocks in 2013, with TSLA stock up an amazing 400% year-to-date.
But bigger picture, Tesla has taken an important step towards rewriting the rules of the vehicle market.
Electric vehicles have long been criticized as a quirky but impractical transportation option thanks to short ranges and huge price tags. But while pricey and admittedly limited in its use because of a lack of charging stations, the Tesla Model S sedan has proven not just viable but wildly successful.
And the rest of the auto sector has noticed. General Motors (GM) is now working on a version of the Chevrolet Volt that could go head-to-head with Tesla, with the goal of a 200-mile battery range and a $30,000 price tag. Meanwhile, Ford (F) has invested $8 million in a lab at the University of Michigan to improve its electric vehicle plans with more efficient and cost-effective batteries.
So if you missed out on the Tesla run and you’re worried about buying a top in TSLA stock now, don’t fret. Because the electric vehicle revolution is just getting started.
Here are three great ways to play that trend:
The key component in fast-charging EV batteries is lithium. The element allows for a high charge with a long life compared with other elements, but also is reasonably cost effective.
So if you want to play the electric vehicle revolution without picking an automaker, just invest in the key fuel source with the Global X Lithium ETF (LIT).
This lithium fund invests in the largest and most liquid stocks that explore and mine lithium, or companies that directly produce lithium batteries. Right now, top holdings include FMC Corp. (FMC) and Rockwood Holdings (ROC), two diversified chemical companies each with large lithium exposure. Other investments include Chilean lithium miner Soquimich (SQM) and Korean electronics and industrial giant Samsung (SSNLF).
A lot of this fund is positioned currently towards electronics use of lithium, but that will surely change over time to also favor electric vehicles. So if you’re looking for a diversified play that still has a focus on EV sales, the LIT ETF is a great lower-risk option.
If you want to pick an individual battery maker, one surefire way to ride with Tesla is to buy its battery supplier Panasonic (PCRFY) and its Panasonic EV Energy division.
While you may know the Japanese company best from its old life as a consumer electronics giant, which admittedly has crumbled in recent years, Panasonic currently provides Tesla with Model S batteries — and that gives it a prime position to play a role in the electric vehicle revolution. In fact, the EV Energy group started in 1996 as a joint venture with Toyota (TM) to produce batteries for its Prius and has now grown to supply a big chunk of the hybrid and electric vehicle market.
If you can look past the decline of legacy business divisions at Panasonic that resulted in 10,000 layoffs just about a year ago and another 36,000 before that, it may be worth taking a flier on this bargain-priced Japanese stock to benefit from its front-running role in the EV space.
While we can quibble over whether Tesla will crash and burn or whether it’s fairly valued, the benefit of buying its battery provider is that Panasonic is certainly not riding a momentum wave with a return of -40% since early 2010. And regardless of whether expectations and sentiment change for TSLA stock, as long as the company keep writing checks to Panasonic for batteries then the cash will keep flowing.
Panasonic stock looks to have turned a corner with 58% gains year-to-date in 2013, though it is admittedly still in restructuring mode.
A favorite among investors in auto stocks, Johnson Controls (JCI) provides a host of equipment to automobiles — including batteries of all types. And while the bulk of its business still comes from old-school lead acid batteries, its Power Solutions division is increasingly getting into the lithium battery game for both hybrids and electric vehicles.
Right now, in fact, Daimler (DDAIF) is using Johnson Controls as a supplier for its hybrid S-class Mercedes sedan. And you can bet that as the automotive industry evolves, JCI will be there to provide batteries to the biggest and best vehicles on the market.
Exposure to both conventional and EV sales means that obviously Johnson Controls will be prone to secular pressures in the auto industry, and even a growing market for electric vehicles could be offset by declines in the overall business of making and selling cars going forward.
But considering that auto sales at home and abroad keep moving higher and that 2014 is forecast to be the best year for U.S. auto sales since 2006, right now that broad exposure is actually a good thing for JCI.
Johnson Controls stock is up 40% year-to-date in 2013.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.
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