Now that we’ve entered 2021, there seems to be a bit of a mindset shift in the markets. To be sure, not much has changed: we’re still in the midst of a pandemic and look to be for a good portion of 2021. However, one thing is shifting: the rumblings of EV pushback are clear. And battery stocks will be a benefactor of this pushback.
It is my belief that EV stocks are going to remain hot through 2021. However, markets and capital are going to move into EV suppliers with more force. That means battery manufacturers and suppliers to these companies should become more attractive this year.
This list is focused on exactly that: EV battery manufacturers and suppliers thereto. Any and all of these stocks are a buy in my eyes.
- Sociedad Quimica y Minera de Chile (NYSE:SQM)
- Albemarle (NYSE:ALB)
- Ganfeng Lithium (OTCMKTS:GNENF)
- Panasonic (OTCMKTS:PCRFY)
- Romeo Power (NYSE:RMO)
- Vale (NYSE:VALE)
- Glencore (OTCMKTS:GLNCY)
Battery Stocks: Sociedad Quimica y Minera de Chile (SQM)
Investors who have interest in EVs are likely well aware of lithium as a mineral integral to the sector. Lithium-ion battery chemistry has become the leading battery type used in the industry. Therefore, lots of lithium is necessary until a better suited chemistry is commercialized. The leading candidates don’t look to be commercialized for some time yet. The upshot is lithium mining is a smart place to be for EV investment.
And that’s why Sociedad Quimica y Minera de Chile and its SQM stock lead off this list. The Chilean company is a major producer of lithium. Lithium currently accounts for about 16% of Sociedad Quimica y Minera de Chile’s profit and the company is making a major investment in increasing its lithium capacity.
It is clear that the company sees lithium as important to its immediate future. The company has four scheduled expansions through 2023. It is investing $240 million toward lithium production expansion, which will increase production by 69.5% by the second half of 2021.
That means the company will go from the ability to produce 83.5 million tons of lithium to 141.5 million tons by the end of this year. The company is not stopping there. It intends to invest a further $150 million to bring total lithium capacity to 210 million tons by 2023. That 151.5% capacity increase is indicative of larger demand.
The company did experience a revenue decrease of 11% in the first nine months of 2020 compared to 2019. However, lithium sales volumes increased 40% between Q2 and Q3 making this a worthwhile play moving forward.
Albemarle is another major name in lithium production. It also experienced a sales decline and is positioning itself to take advantage of opportunities in lithium. Despite the downturn, ALB stock is definitely a smart play that makes sense in the EV space.
The company explains its overarching strategy thusly: “Our long-term strategy and capital allocation priorities remain the same: to invest in lithium growth using cash flows from our entire enterprise, while maintaining our dividend and investment grade credit rating.”
Albemarle depends on lithium for 37% of its total revenue currently and anticipates 20% industry growth. Albemarle experienced a sales decline of 19.6% in its lithium segment and 15.1% across its entire business in Q3 of 2020. The company says that while lithium market growth was stunted in 2020 that it still anticipates the same overall future growth.
My thesis is that it makes sense to invest now while revenue is relatively weakened and Wall Street views ALB stock as a “hold.” Revenue may have slipped, but earnings well outpaced guidance for the quarter, and the company remains solidly entrenched in its lithium strategy.
Battery Stocks: Ganfeng Lithium (GNENF)
China is a massive market for EVs. In fact, it’s the world’s largest by market share. But the country also has massive natural resources, which gives it another advantage when it comes to EVs. It has national champions including Nio (NYSE:NIO) and XPeng (NYSE:XPEV), and it has companies like Ganfeng Lithium which can supply them.
The company is headquartered in China and has operations in Australia, Argentina, Ireland and Mexico. Ganfeng Lithium is clearly well-diversified geographically. But it is also diversified in terms of its operations. It maintains lithium operations upstream, mid-stream and downstream, meaning it does everything from mining lithium to lithium battery manufacturing.
Not only is the company massive, but it has also experienced robust growth. Ganfeng’s CAGR averaged 41% between 2015 and 2019. Profitability growth decreased in 2019 although still a very healthy 16%. But it has begun to rise again in 2020.
The previous three stocks were all lithium producers. It is time to move up the value chain into the actual battery manufacturers. Most readers will recognize that Panasonic does many things. It is not a dedicated EV battery manufacturer by any stretch of the imagination. However, it does produce batteries for Tesla (NASDAQ:TSLA). That alone makes it a name worth mentioning in this space. The simple fact is that to a degree, as Tesla goes, so goes the whole EV market.
Anyway, the important consideration here for investors is the EV business between Panasonic and Tesla. Tesla has long been speculated to want to bring battery production in-house. But the long-time relationship it has had with Panasonic will continue through at least 2022.
Panasonic is under pressure to increase energy storage capacity by Tesla. By 2025 its Model 3 battery is slated to have improved energy storage capacity by 20%. It is also under pressure to make similar leaps for the Tesla Model S and Model X.
Battery Stocks: Romeo Power (RMO)
Now is the time to invest in Romeo Power. Prices have recently come down and now RMO stock’s price point makes sense in addition to its strategic positioning. For an excellent run down of why Romeo Power is a bargain on a purely quantitative, objective basis, check out this article by InvestorPlace’s Mark Hake. Numbers don’t lie, and these numbers indicate that there is lots of upside in RMO shares.
From a more subjective perspective there’s also lots to like about Romeo Power. Most readers will know that many SPAC-funded EV companies came to market in 2020. Romeo Power is also a SPAC. But it is an EV supplier, not a manufacturer. The company makes battery packs for two segments: class 4-8 trucks and buses and high-performance vehicles, along with other commercial vehicles. EV battery manufacturing should continue to have many tailwinds as the decarbonization push shows little indication of slowing. EVs are here to stay.
The company has $544 million in contracted revenue, and another $2.2 billion possible under negotiation. So the $350 million it received at closing should be utilized to fulfill the sales it has booked. The company has an excellent chance to be the name behind truck electrification efforts underway at companies like Peterbilt (NASDAQ:PCAR) and Freightliner (OTCMKTS:DDAIF).
Romeo Power has established relationships with 68% of the class 8 vehicle manufacturers in North America currently. They simply have to take SPAC funds and prove that their technology will effectively work for those companies. If they can, revenue will flow. That’s why this stock makes so much sense at current prices.
Let’s switch gears again and go back to the far upstream of the battery industry. The first three stocks on this list were all related to lithium used in the manufacturing of the batteries themselves. There’s another mineral also very important in the battery manufacturing process: nickel. Nickel is set to receive high demand due to its utility in the EV battery manufacturing process. And on the supply side, there simply isn’t enough nickel to satisfy that demand. In fact, there may be a 10-fold increase in demand between 2018 and 2025.
The calculus is simple: produce and supply that nickel and make great profits. Vale increased its sales of nickel by 37.3% in Q3 of 2020. VALE stock is rated a “buy” and shares are currently less than $20, making it an attractive play in EV batteries. It is probably the strongest play in battery stocks as it relates to nickel in production.
Battery Stocks: Glencore (GLNCY)
Last but not least on this list of battery stocks is Glencore. Like Vale, it is included because of its focus on nickel production. The company produces nickel in Asia, Australia, North America and Europe. In Q3 Glencore experienced a 9% decrease in nickel production as a result of operational restrictions due to Covid-19 at its Koniambo plant in New Caledonia. The company produced 81,800 tons of nickel in the period.
Prices have remained basically steady in the past two years for nickel, according to the company, but Glencore will have plenty of opportunity to sell to EV battery manufacturers as long as it can produce the metal.
Glencore is diversified across mineral and metals mining. It is also relatively cheap at less than $10 per share. The company is well funded and in position to serve EV battery manufacturers, as well as many other downstream companies across many industries. GLNCY stock is cheap with a lot of upside and worth a look.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.