A combination of consumer demand and government edict has every major car manufacturer building an electric vehicle (EV). The transition meant EVs needed a better power supply than the lead-acid batteries found in internal combustion engine cars. This shift has generated significant interest in battery stocks to buy.
Lithium-ion batteries currently do the heavy lifting, but we’ll need new technologies tomorrow. Tesla (NASDAQ:TSLA) founder, Elon Musk, made the bold prediction the carmaker would be producing 20 million EVs in 2030. Yet battery supply chain consultant Adamas Intelligence said there is not enough supply of the metals needed to meet Tesla’s production schedule, let alone the rest of the industry.
For 20 million Teslas, 755,400 tonnes of lithium are needed, but only 540,000 tonnes were produced globally in 2021. The World Economic Forum says 3 million metric tons will be needed by 2030. Fitch Solutions research unit BMI forecasts a lithium shortage as near as 2025. With demand growing 20% annually, but supply by just 6%, we’re going to run short. It’s going to cause the prices of both lithium and the EVs using them to soar.
Of course, EVs might not even be using lithium ion batteries in the future. What follows are three battery stocks to buy now.
Not a battery maker, Albemarle (NYSE:ALB) is a top lithium producer and stands to reap the immediate rewards of growing demand. Sure, other technologies may come to the forefront, but right now lithium is what everyone needs, which makes this company a fantastic option in battery stocks to buy.
Albemarle is negotiating to acquire Australian company, Liontown Resources (OTCMKTS:LINRF) for $3.3 billion. The pre-revenue start-up has been stockpiling lithium ore at its Kathleen Valley site. It has agreements with Tesla, Ford (NYSE:F) and South Korean battery maker LG Energy Solutions to supply the companies with lithium for increased battery production.
Shares of Albemarle are down 43% over the past year as new lithium supplies hit the market. The discovery of a massive lithium deposit in an extinct supervolcano on the border of Nevada and Oregon hurt pricing. The deposit is not ready to come online and Native Americans are challenging exploiting it because it sits on sacred lands. It might never be tapped and EV demand inexorably grows.
Over the long haul, lithium demand will put a floor under the falling prices. In the meantime, Albemarle is still very healthy and profitable. Revenue was up 60% last quarter and adjusted EBITDA soared 69%. That helped it raise the lower end of its full-year sales guidance and the range of its adjusted EBITDA forecast.
At less than 5 times earnings, 7 times estimates and a fraction of its projected earnings growth rate, Albemarle is a deeply discounted stock. It should flourish for years to come until demand and supply find equilibrium.
A bit more speculative, but solid-state battery maker QuantumScape (NYSE:QS) will be a leader in the next phase of lithium technology that replaces existing lithium ion batteries. The batteries QuantumScape will make still rely upon lithium, but their solid-state nature allows for faster charge times, greater efficiency and safety. Its technology is miles ahead of existing batteries, but only if it pans out.
QuantumScape is risky because it has yet to bring its technology to market. It has no revenues and developing its solutions costs money, resulting in mounting losses. It began delivering its prototypes to major automotive customers last December. So far the batteries are living up to expectations. But it is not producing commercial quantities.
The battery startup believes its balance sheet is strong enough to carry it forward for several more years. That should give it time to produce its own batteries, enter into joint ventures and pursue licensing relationships for its technology. But investors should understand the road won’t be smooth.
QuantumScape’s stock plunged sharply last year as investors turned to profit-making businesses. Shares recovered in 2023, rising some 15%, but it will be a bumpy ride. When commercialization starts in earnest, an investment in QuantumScape could pay off in big returns by buying now.
Toyota Motors (TM)
Including a carmaker on the list seems out of place, but Toyota Motors (NYSE:TM) is becoming vertically integrated when it comes to batteries. It is also making solid-state batteries internally and expects to begin mass production in 2027. It is targeting a 1,000 kilometer range (over 600 miles).
Toyota is investing $13.6 billion in batteries over the next 10 years, including $9 billion in production, as it attempts to electrify its vehicle lineup. It plans to have 10 battery production lines by 2025 with as many as 70 lines eventually in use.
The Japanese automaker is pursuing a multi-mode strategy. Not only will battery EVs be part of its offerings, but hybrid vehicles and hydrogen fuel cell vehicles, too. It was late to the EV party, but is making up for lost time since.
Although Toyota’s auto sales jumped 12% in the second quarter, the strike by union workers may push back further developments. Toyota also trades at deeply discounted valuations. It goes for around 10 times earnings and estimates. Wall Street forecasts the carmaker expands earnings 16% annually for the next five years, valuing Toyota’s stock at a fraction of that growth rate. With all major car makers angling for an edge in EVs, Toyota may have the inside pole position to win.
On the date of publication, Rich Duprey did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.