How to Profit From “Batteries on Wheels”

The electric vehicle (EV) battleground is rapidly becoming a battery battleground.

an electric car plugged in for charging, representing electric car stocks
Source: buffaloboy / Shutterstock.com

Already, the competing automakers are producing a wide variety of models at various price points. The upcoming Buzz from Volkswagen AG (OTCMKTS:VWAGY), for example, looks nothing like the Model 3 from Tesla Inc. (NASDAQ:TSLA). The various models will attract different types of buyers.

But when it comes to potential profits for the EV manufacturers, batteries are the story, not auto designs.

Battery technology is the factor that will enable automakers to either profit from the EV boom … or not.

That’s why Tesla has been hosting an annual “Battery Day” to highlight its advances and ambitions in battery technology.

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It’s also why, as we discussed here last week, Volkswagen recently piggybacked Tesla by hosting its first-ever “Power Day.”

These events are not merely public relations stunts. They are signals to the market that batteries — not design — are the heart of the EV story. During the last few weeks alone, several EV manufacturers announced a series of new battery initiatives or contracts.

Today, let me show you a few of those announcements.

Then, we’ll explore one of the best ways to invest in those advancements (hint: It’s not the automakers themselves).

Multibillion-Dollar EV Battery Orders

Earlier this week, Volkswagen placed a $14 billion order with Northvolt, a Swedish manufacturer of lithium-ion batteries. According to the deal’s terms, Northvolt will be the main European supplier of premium battery cells to VW for 10 years.

BMW AG (OTCMKTS:BMWYY) also has multibillion-dollar deals with Northvolt. To fulfill those deals and others, the company is building out the Northvolt Ett “gigafactory” in Sweden and constructing a 16-gigawatt production capacity manufacturing facility in Germany.

Another example is the announcement from Quantumscape (NYSE:QS), of which VW owns more than 25%. The Silicon Valley-based solid-state lithium battery maker said it plans to raise about $800 million “to build a larger QS-0 pre-pilot line than recently announced; to cover its full share of equity contributions to its joint venture with Volkswagen … for the previously disclosed 20-gigawatt-hour expansion of QS-1 joint manufacturing facility.”

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Every EV manufacturer and battery maker is powering full-speed ahead with plans to develop/produce the best EV battery “mousetrap.”

While Northvolt and Quantumscape’s primary market is EVs, these moves are also significant for the energy storage market.

Northvolt spokesman Jesper Wigardt says his company has a “very strong outlook on the European energy storage market, to which we will be delivering significant volumes in the form of battery modules and packs.”

In view of Northvolt’s recent supply order from Volkswagen, Northvolt Ett gigafactory will be significantly expanded beyond the 40GWh capacity we were targeting …

To be distributed across several gigafactories, we’re aiming for 150GWh annual cell production in 2030 and we expect roughly 20% of those cell volumes to be committed to Northvolt Systems, with the majority of that directed to grid solutions.

For investors looking for a smart place to put their money, I would look beyond the battery and EV companies.

You see, as these plans proceed, and as the EV and energy storage markets continue to ramp higher, demand for battery metals will also ramp even higher.

That’s why, in a recent issue of Fry’s Investment Report, I named the “Battery Metal ‘Rush'” as one of four “power trends” to watch in 2021.

While global production of industrial metals like copper, aluminum and nickel has been flatlining for the last few years, demand for these metals has continued to climb higher.

“An Echo of 10 Years Ago”

The chart below shows Bloomberg New Energy Finance’s mind-boggling demand projections for nickel and other battery metals.

This demand surge comes from a paradigm shift — the massive global migration toward technologies like electric vehicles (EVs), renewable energy and energy storage. All of these innovations are “metal hogs,” and companies are going out of their way to improve this technology and hasten its adoption.

EVs are basically batteries on wheels. Batteries are basically hunks of various metals. And so … more batteries means more demand for battery metals.

Indeed, after researchers from UBS recently broke down the ID.3, VW’s first mass-market EV, to its components, they basically came out and said, “Buy battery metals.”

The Swiss investment bank actually called the ID.3 the “most significant bet on EVs made by any legacy carmaker to date” and said it shows that competitive EVs can be built cost efficiently.

And after putting that new breakdown together with Its other EV and battery findings, UBS upgraded its battery metal forecasts through 2030.

Over that time frame, UBS now predicts that:

  • Lithium demand will soar 11-fold.
  • Natural graphite demand will grow seven-fold.
  • Demand for nickel will more than double.
  • Cobalt demand will expand by about 13%.
  • And copper consumption will increase around 3% per year – compared to pre-EV annual growth of 2.4%.

Meanwhile, Richard Adkerson, the CEO of copper miner Freeport-McMoRan Inc. (NYSE:FCX), recently said he thinks the double in price in copper over the past year is more than a fundamentals-free spike. Freeport, a company we talk about often here, has surged more than 350% over the past year thanks to that rising copper price.

While Adkerson doesn’t use the word, he clearly believes, thanks to EV and electric storage growth, we’re at the start of a battery metal “supercycle.”

With low supply, growing demand, and no big new mines on the horizon, he said, the recent surge has “a degree of an echo” with two decades ago. While “you never know what’s around the corner,” Adkerson said, “if copper were to go to $10 tomorrow, it would take us seven, eight years to get new production to the market.”

That last commodity supercycle, fueled by industrial demand from a surging China, kicked off in 1999. During that supercycle, the Thomson Reuters CRB Commodity Index soared 300%. This recent history may not repeat itself exactly, but don’t be surprised if it rhymes.

Unlike stocks, which tend to move higher over time, commodity prices cycle through powerful multiyear booms, followed by spectacular multiyear busts.

It all adds up to a rare investing opportunity for battery metals.

I recently laid out my approach to capitalizing on any major move in battery metals — including several stocks to buy — in an in-depth special report.

Find out how to get that report here.

Regards,

Eric Fry

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On the date of publication, Eric Fry did not own either directly or indirectly any positions in the securities mentioned in this article.

Eric Fry is an award-winning stock picker with numerous “10-bagger” calls —in good markets AND bad. How? By finding potent global megatrends… before they take off. In fact, Eric has recommended 41 different 1,000%+ stock market winners in his career. Plus, he beat 650 of the world’s most famous investors (including Bill Ackman and David Einhorn) in a contest. And today he’s revealing his next potential 1,000% winner for free, right here.  


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