As we continue to navigate another wild year, one sector that continues to thrive are electric vehicles (EVs). That said, this space shows no signs of slowing down — and that provides a solid outlook for battery stocks.
Deloitte estimates suggest that the EV industry will grow at a CAGR of 29% through 2030. That said, this seems very likely considering the global push for cleaner energy. Additionally, another recent study by Bank of America Global Research indicates that the world might run out of EV batteries by 2025. So, considering this growth outlook and supply scenario, battery stocks are worth considering for the long-term portfolio.
With the growing demand, the industry has also witnessed innovation. Solid-state batteries are being considered as the batteries that will power EVs in the future. That’s one area of focus in this column.
Furthermore, with the demand for lithium-ion batteries, there has been significant action in lithium mining stocks. I have also discussed one lithium miner that looks positioned for robust returns in the next few years.
With all of that in mind, let’s talk about the four battery stocks that seem positioned for an uptrend with positive industry tailwinds.
- Panasonic Corporation (OTCMKTS:PCRFY)
- Lithium Americas (NYSE:LAC)
- QuantumScape (NYSE:QS)
- Nio (NYSE:NIO)
Now, let’s dive in and take a closer look at each one.
Battery Stocks: Panasonic Corporation (PCRFY)
Year-to-date, PCRFY stock has been relatively sideways. However, the stock looks attractive at a trailing price-earnings ratio (P/E) of 18.8.
In the automotive battery segment, Panasonic has been making rapid strides. Last year, the company introduced a new technology for higher battery capacity. The company also increased production in the North American factory with additional capacity expected in 2022.
In February 2020, Panasonic and Toyota (NYSE:TM) established a joint venture (JV) for automotive prismatic batteries. The JV will develop “highly competitive, cost-effective batteries that are safe and feature excellent quality and performance.”
Recently, Schlumberger (NYSE:SLB) also tied-up with Panasonic for a “new battery-grade lithium production process.” In turn, these developments are likely to translate into accelerate growth in the battery segment in the next few years.
For FY2021, the company reported automotive segment sales of 1,339.4 billion yen. For the current financial year, the company has guided for sales of 1,560 billion yen. Clearly, growth seems to be gaining traction. And considering the outlook for EVs over the next decade, PCRFY stock does seem to be among the top battery stocks. It’s also worth noting that the stock offers a healthy dividend yield of 1.55%.
Lithium Americas (LAC)
I would consider LAC stock among the attractive names in the list of battery stocks. The company is in the exploration and production of lithium. Therefore, the company can be considered as a proxy-play for strong growth in demand for lithium batteries in the coming decade.
From a stock price action perspective, LAC stock has surged by 131% in the last 12 months. However, the stock has been a bit down for the current year. That said, a breakout seems imminent after the current consolidation.
Moreover, the company’s Cauchari-Olaroz asset has an annual production capacity of 40,000tpa with a project life of 40 years. The asset is likely to deliver an average annual EBITDA of $308 million. The asset is on-track for production in mid-2022.
Furthermore, the company’s Thacker Pass lithium project is likely to deliver production of 60,000tpa. The project has a life of 46 years, and the company has guided for average annual EBITDA of $520 million from the project.
Clearly, once these two projects commence production, the company is likely to report healthy EBITDA and cash flows. Financing growth does not seem to be a concern. Lithium Americas has $500 million in cash. The company’s Caucharí-Olaroz asset is already fully-funded.
Battery Stocks: QuantumScape (QS)
QS stock has seen significant volatility in the last few quarters. The stock touched a high of $132.70 in December 2020. A sharp correction ensued and QS stock currently trades at $21.50. Nonetheless, I believe that the company is attractive if investors are looking at innovators among battery stocks.
Talking about innovation, the company has more than 200 patents related to material, use and process. The differentiating factors are likely to include lower cost, higher battery life and faster charging.
It’s also worth noting that Volkswagen (OTCMKTS:VWAGY) is one of the investors in QuantumScape. Besides funding commitment, the company also has a joint venture for mass production of solid-state batteries for Volkswagen.
Of course, the commercial production is due in 2024 or 2025. However, as prototype samples are developed and tested, the stock is likely to react on news. From a financial perspective, is in a solid position in terms of cash and equivalents. There is unlikely to be any concern related to growth financing, and the backing from Volkswagen is an added advantage.
Nio stock is another attractive name among battery stocks. The company is also among the top-picks in the EV sector in China. At the beginning of 2021, Nio stock touched a high of $66.99. After some correction and consolidation, the stock currently trades at $39.21. These are attractive levels for fresh exposure.
In January 2021, Nio announced a 150KWh solid-state electric vehicle battery. The battery is backward compatible, and the launch will be in 2022. The new battery is likely to “offer 620 miles in the new ET7 from a single charge.”
Another factor that has worked in favor of Nio is battery swap service. As of March 2021, the company completed 2 million battery swaps. Also, the company has plans for 4,000 battery swap stations globally by 2025. Within China, Nio has partnered with China’s State Grid to build 100 battery swap stations across the country.
Overall, Nio has ambitious growth plans globally and the company’s solid-state battery launch is likely to keep the company ahead of peers. Furthermore, with services such as battery swap and battery-as-a-service, the company is well-positioned for sustained growth in vehicle deliveries.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.