Editor’s Note: This article is a part of our “If You Only Buy One Stock” series where we look at 2021’s most popular investing trends and have our top financial journalists make their very best pick. Click here to see more names for your must-buy list.
The transition to electric vehicles (EVs) is full steam ahead. Investors interested in the underlying battery technologies underpinning the EV space certainly have a lot of options. From battery makers like QuantumScape (NYSE:QS) to EV producers like Hyliion (NYSE:HYLN) to rare earth miners like MP Materials (NYSE:MP), there are a range of ways to play this space. Indeed, I think investors in QS stock, HYLN stock and MP stock have a lot to like right now.
But some options are better than others.
Let’s dive into the three aforementioned stocks investors in battery technology may be interested in right now.
QuantumScape: Great Technology, But Not Commercially Ready?
Lately, QuantumScape has been entangled in a pretty serious fight with short-sellers.
The company’s highly-touted solid-state batteries it’s intending to produce commercially by 2024 or 2025 are considered to be the “holy grail” of electric car batteries. These batteries would, in theory, be able to charge faster, have longer-range, be longer-lasting, and more efficient than existing battery technologies. This solid-state battery technology is still in development. However, the company claims to have made some significant progress in this regard.
With backers like Volkswagen AG (OTC:VWAGY) taking a stake in QuantumScape, investors have jumped aboard. However, allegations from short seller Scorpion Capital suggest that the recent press releases and interviews given by QuantumScape’s CEO paint an inaccurate picture.
The short report compares QuantumScape CEO Jagdeep Singh to infamous Theranos founder Elizabeth Holmes. Various employees suggest solid-state battery technology won’t be in actual production for the next decade. Additionally, various employees believe the company’s CEO has been dishonest in his disclosures to investors.
That’s not good.
Hyliion: An EV Option with Lots of Promise
Other companies like Hyliion in the EV space have made headlines of late as the EV makers of the future.
Well, Hyliion’s business model is in providing hybrid/EV powertrain solutions for Class 8 vehicles. These are primarily the semi trucks which have yet to be tackled by most EV makers, due to the complexities involved with charging such batteries for long-haul trucking.
However, Hyliion claims to have made some significant progress in this regard. Similar to QuantumScape, Hyliion announced a next generation battery module it believes has the potential to “enable longer battery life, higher charging rates and improved safety.”
These improvements are certainly beneficial to the investment thesis in companies like Hyliion.
However, the recent QuantumScape news has prompted skepticism with respect to how commercially-ready these technological breakthroughs are. Accordingly, shares of HYLN stock have been cut more than in half since the announcement two months ago.
Indeed, investors appear impatient with story stocks like QuantumScape and Hyliion right now. Improvements in battery technology are coming, but investors seem to want to invest in what’s making change right here and now.
Which brings me to my top pick in this space.
MP Materials’ Company-Agnostic Offering Makes MP Stock My Battery Top Pick
I think the EV sector is one which is still in its infancy today. Accordingly, picking a winner in the race for battery technology supremacy is difficult task for investors today.
However, picking companies with sector-specific exposure to battery development may be a much better route.
In this regard, I think MP stock is a solid choice for investors today. The company is a miner of rare earth materials used to develop batteries. These rare earths are hard to come by domestically, with the majority of rare earths mined in Asia (specifically China).
Accordingly, the fact that MP is the largest producer of rare earths in North America is a big deal. Given the current state of U.S.-China relations, it is in the best interests of the U.S. government to support MP as a critical supply of battery materials domestically. The company’s focus on not only mining these rare earths, but building its separation and processing capabilities over time, should drive further value capture and wider margins over time.
In other words, MP stock is a true “picks and shovels” play on the battery revolution. Investors looking for a top pick in this space should gravitate toward this stock. In my view, it won’t be this cheap forever.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.