Aside from the novel coronavirus, 2020 may well go down among the investment community as the year of the special purpose acquisition companies (SPACs). This distinct manner in going public has found great enthusiasm among electric vehicle manufacturers. But sifting through winners and losers could be a treacherous activity. Instead, investors may want to consider what underpins EVs. In other words, it’s time to consider battery stocks to buy.
As you well know, the meteoric rise of Tesla (NASDAQ:TSLA) has excited speculators about the prospects of making serious money over a short timeframe. Naturally, this has sparked speculation in other EV makers, particularly those from China. But if you think about it, Tesla wouldn’t be anywhere without its battery packs; hence, the disappointment about Tesla’s non-battery day.
Further — and this will probably get my inbox filled with hate mail but oh well — it’s difficult to ascertain TSLA’s trajectory. What gets lost in the picture is that Tesla sells its vehicles at a loss. Again, vehicles. So how did it make profits over the past few quarters? Long story short, many automakers buy regulatory “carbon” credits from Tesla in green jurisdictions. And that’s the key for battery stocks to buy.
According to research firm Trefis, “there’s been skepticism if Tesla’s business would actually be viable excluding these profits.” Look at it this way. If the government decides to stop imposing these carbon penalties on passenger car manufacturers — because if you look at facts, consumer cars are hardly the biggest polluters — then Tesla suddenly loses its cash cow. But EV power sources will still be relevant, which bolsters battery stocks to buy.
Further, automakers will eventually stop buying credits from Tesla because a) it’s silly and b) they can make their own EVs to avoid carbon penalties. That’s exactly what the majors are doing, which will flood the electric market with plenty of options. Of course, that makes deciding on TSLA even tougher but could spell opportunity for these battery stocks to buy.
- Panasonic (OTCMKTS:PCRFY)
- Johnson Matthey (OTCMKTS:JMPLY)
- Sociedad Quimica y Minera de Chile (NYSE:SQM)
- Albemarle (NYSE:ALB)
- Livent (NYSE:LTHM)
- Ganfeng Lithium (OTCMKTS:GNENF)
- Vale (NYSE:VALE)
- Hitachi (OTCMKTS:HTHIY)
Before we dive in, the Chinese EVs like Nio (NYSE:NIO) and Xpeng (NYSE:XPEV) are also subject to similar pressures. One wonders what their true viability would be without subsidies or other forms of government support. With battery stocks to buy, you don’t have to worry about brand appeal in an increasingly commoditized market. Instead, if you believe that EV demand will continue to grow, it’s a matter of picking your ideal risk/reward profile.
Battery Stocks: Panasonic (PCRFY)
Usually, you don’t start off a list of must-have investments with over-the-counter names unless you’re specifically dealing with high-risk, high-reward ventures. But in terms of battery stocks to buy, I’m going to make an exception with Panasonic. Yes, because it’s an OTC idea, it has a weird ticker name — PCRFY stock. But not every company listed in the pink sheets is speculative.
While the OTC market has a well-deserved reputation for where dangerous penny stocks trade, it’s also possible that companies don’t want to pay the fees associated with being listed on a major U.S. exchange. For Panasonic, this is probably the case. Up until a few years ago, Japanese equities were on a bridge to nowhere. But PCRFY stock is a shining exception, with its underlying battery business pivotal to Tesla’s success.
A few months ago, Nikkei Asia reported that Panasonic “will begin supplying higher-capacity batteries for Tesla’s Model 3 electric vehicles in September in a bid to keep an important customer close.” Further, Panasonic’s EV battery is very competitive with Chinese rivals in that its incredibly reliable in both consistent performance and safety. This suggests PCRFY will be one of the strongest battery stocks to buy for years to come.
Johnson Matthey (JMPLY)
Yes, this is another OTC name near the top of this list of battery stocks to buy. But no, I don’t believe the reputation of where Johnson Matthey’s shares trade is an accurate indication of its future trajectory. However, most U.S.-based investors may not be aware of JMPLY stock, primarily because the EV sector is flooded with the usual suspects.
However, you’re going to want to pay close attention to Johnson Matthey moving forward. Over the years, the company has been researching and developing EV battery materials to catalyze superior performance. According to its website, Johnson Matthey scientists discovered a breakthrough in cathode materials “that should significantly improve the range and acceleration of electric cars, while also making them quicker to recharge.” Critically, this implies a less-onerous transition for drivers of combustion cars.
What should also pique investors’ curiosity toward JMPLY stock is that the underlying company specializes in electric solutions for high-end luxury automotive brands. For example, Jaguar Land Rover will utilize Johnson Matthey’s powerplant for its select electric-based models. Usually, it’s nice to have the backing of affluent consumers.
Sociedad Quimica y Minera de Chile (SQM)
For the number three slot on this list of battery stocks to buy, we’re going back to an oldie but a goodie. Technically, it’s not a pure battery play of course. However, lithium plays a central role in lithium-ion batteries as you might guess. And Sociedad Quimica mines a ton of the stuff, making SQM stock a viable play on the EV revolution.
According to InvestingNews.com, “SQM claims to be the world’s largest lithium producer, with offices in over 20 countries and customers in 110 nations across the globe. The firm has five business areas, ranging from lithium and derivatives to potassium to specialty plant nutrition.”
I don’t want to get involved in a contest about which company really produces the largest amount of lithium. For me, one of the most compelling reasons to own SQM stock is that the mining firm is located within the so-called Lithium Triangle, a region in the Andes rich in lithium reserves around the borders of Argentina, Bolivia and Chile.
However, if you’re also big on environmental, social, and governance (ESG) concerns, SQM isn’t the most ideal investment. In fact, it’s raised the ire of indigenous tribes due to the negative impact of lithium mining. Again, it’s not a debate that I want to get into here but it’s worth considering if you like virtue-signaling.
Some sources state that Albemarle is actually the world’s largest lithium producer. As I said above, I don’t want to take sides in that department. Still, ALB stock makes a compelling case for itself for investors preferring to keep their battery stocks to buy domestic. Better yet, the company does claim the title of providing the most lithium specifically for EV batteries.
To be fair, ALB stock — as is the case with SQM — appears technically overheated. Since the beginning of January, shares are up nearly 106% (SQM is up nearly 83% over the same period). As well, Albemarle received a substantial boost post-election night. And the valuation received higher premiums as it became apparent that Joe Biden is on his way to the White House.
Therefore, I’d be looking for ALB to register a discount before considering diving in (the same applies to SQM). However, if you really believe in the long-term narrative for EVs, I’d take advantage of any substantial dips. As I noted earlier, EVs may become commoditized, but that would probably only benefit Albemarle as it can feed the higher volume, no matter what the brand.
Spun off from FMC Corp (NYSE:FMC) in 2018, Livent is one of the lithium majors among battery stocks to buy. The company runs its lithium business in the Salar del Hombre Muerto region in Argentina, one of the countries of the Lithium Triangle. LTHM stock has been steadily rising since 2020’s March doldrums. Like the others, it has found substantial momentum following the U.S. presidential election.
But how much will politics play into the narrative for LTHM stock? Naturally, it’s a controversial topic, particularly because of the present vitriol. However, there is some evidence to believe that ideological differences from the executive office can impart conspicuous changes for green-energy-related companies. Perhaps the biggest example of this is President Trump’s decision to strip protections from Tongass National Forest, opening the area to logging and other forms of development.
Of course, logging doesn’t have much to do with lithium directly. But this action demonstrates that a presidential administration does bear some influence on environmental matters. With President-elect Biden leading the way, the longer-term picture should be conducive for Livent and other battery stocks to buy.
Ganfeng Lithium (GNENF)
Presumably, most people who buy EVs fall into two camps: those who wish to do their part in reducing carbon emissions and mitigating other forms of environment impact and those who enjoy the conveniences of electric driving, such as at-home “refueling” and brisk acceleration, among many other advantages.
But what may not get as much coverage — at least in terms of the marketing machinery — is that EVs represent a sort of cold war between the U.S. and China. Both want to dominate the sector for obvious financial reasons. The former has the advantage of superior quality and craftsmanship and the latter can churn out volume like no one’s business. It’s unclear which side will win out, which makes Ganfeng Lithium one of the more controversial battery stocks to buy.
If you don’t want to support Chinese enterprises with hard-earned American dollars, I get it. Plus, as a lesser-known entity, GNENF stock is prone to volatility. Shares have already jumped over 360% in 2020, which means there is some fear of holding the bag.
But if you’re completely agnostic with your portfolio, you may want to give GNENF stock a chance. Like I said, you just don’t know how the EV wars will pan out.
For obvious reasons, lithium dominates the discussion of battery stocks to buy. However, there are many other components that go into making EV powerplants. Both nickel and cobalt, which Vale mines, have been essential to the electrification narrative. But to be fair, there is also growing debate about the future of cobalt in the EV industry.
As S&P Global pointed out, a global resurgence has occurred regarding utilization of cobalt-free battery formulations. Primarily, the commodity is expensive. Just as importantly from an ESG perspective, many voice concerns about “the use of child labor in ‘artisanal mining’ at the Democratic Republic of Congo (DRC), where 60% of the world’s cobalt is produced.” Still, a wholesale transition to cobalt-free may be difficult, which keeps VALE stock in the game.
Moreover, if demand shifts to other material alternatives, this dynamic could improve cobalt’s economic viability. Regardless, the global EV sector’s increasing fondness for nickel-rich batteries should still benefit VALE stock, as the underlying company is the world’s largest producer of nickel.
Having adequately covered the lithium mining arena, let’s go back to real battery stocks to buy with Hitachi. Back in the old days, Hitachi was an internationally recognized member of Japan Inc., producing reliable, high-quality electronic goods at reasonable prices. But that eventually eroded as the consumer electronics business began a radical transformation.
Now, the company is less known for its retail consumer goods and more for providing critical components for various technological markets. And one of those happens to be its automotive systems division. A few months ago, the company announced the establishment of Hitachi Automotive Electric Motor Systems America, Inc. for the development, manufacture and sale of EV motors. Suddenly, HTHIY stock looks interesting again for the American investor.
Right off the bat, Hitachi has two advantages to offer. First, the company — and Japanese electronics firms in general — is highly regarded for its consistent quality. Second, Japan’s government has a vested interest in working closely with the U.S., as both sides represent a counterweight to China. And that could help attract investors to HTHIY stock who are concerned about the geopolitical impact of their dollars.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.