If electric vehicles (EVs) are ever going to fully transform the auto industry, they’re going to need good batteries. The biggest knock on the sector is the limited range and long charge times required for existing battery technology.
EV battery stocks are developing the next generation of batteries, but it won’t be quick or smooth. Upstart contender FREYR Battery (NYSE:FREY) just sank the whole sector. Third-quarter earnings showed major delays in technology development and big cost-cutting measures it was initiating. The report cut the knees out from under the battery stock as shares plunged 38% in one day.
That sent shares of other companies in the industry tumbling lower too. Although that might present an opportunity to buy competitors at a cheaper price, it also signals the market distrusts the sector. A new technology might not be on the horizon very soon, which could dampen EV adoption. Ford (NYSE:F) and General Motors (NYSE:GM) recently warned EV demand was already softening. GM also canceled a joint venture with Honda Motors (NYSE:HMC) to build lower-cost models.
But there are still good companies to buy. What follows are three of the top battery stocks to buy for your portfolio, if you’re looking to electrify your returns.
Not only does BYD (OTCMKTS:BYDDF) make EVs for the Chinese market, but it is also a global industrial conglomerate. The company develops auto parts and components, rail systems, renewable energy projects and electronics. It is the biggest EV maker in China, with 4 of the 5 top-selling models and 6 of the top 10.
BYD is also the second biggest battery producer. Its Blade battery catapulted it ahead of LG this past summer and is only behind Beijing-backed Contemporary Amperex Technology, also known as CATL. Blade installations more than doubled in the second quarter to 29.4 gigawatt hours (GWh). That gives it a 16.1% share of the market, data from SNE Research shows. CATL has 65.6 GWh installed, up 55.6%, while LG has 25.7 GWh, a 49.3% increase.
The Chinese tech giant is a significant supplier of batteries to Tesla (NASDAQ:TSLA). Warren Buffett is also a long-time backer of BYD. Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) holds an 8% ownership stake in the battery maker, though that’s substantially less than his original position. Buffett has been paring down his shares for some time now.
At 23 times earnings, BYD doesn’t seem cheap, but the business is rapidly expanding, and the valuation is in line with recent trends. The stock is actually lower than where it traded in 2021 and 2022. Because of its industry leadership, BYD can still jolt your portfolio to bigger gains.
Panasonic (OTCKMKTS:PCRFY) is another battery supplier investors should be buying. Arguably best known for its consumer electronics, the battery stock got into the business in 2017 when it partnered with Tesla to build batteries in Nevada for its EVs. The Japanese conglomerate is looking to open even more EV battery plants in the U.S.
Panasonic is the fourth largest global battery supplier, with a 7.1% share. Excluding China — since CATL and BYD control almost the entire market, Panasonic has a 15.1% share, but that’s actually good for third place.
Although Panasonic may no longer be Tesla’s exclusive battery supplier, it has ambitions to be an important player in the industry. It looks to boost annual EV capacity to 200 GWh by early 2031. It is already building a second facility in Kansas that should nearly double its annual capacity to 80 GWh once operational. Panasonic’s chief technology officer said the battery company will ultimately need four additional plants to do that.
Panasonic shares trade at only 7 times earnings and an affordable 15x free cash flow (). Because of the global slowdown in EV sales, the battery maker cut battery production in Japan. It also reduced the segment’s profit outlook by 15%. Shares fell by almost 10% as a result, but that does make for an attractive entry point.
Solid-state battery maker QuantumScape (NYSE:QS) is one of those upstarts looking to enter the market with next-gen technology. Its stock fell 8% following the FREYR Battery announcement. That’s likely because QuantumScape has yet to bring a product to market at a commercial scale. It carries a lot more risk than an established player like Panasonic or BYD. Yet it’s also throwing the baby out with the bathwater.
QuantumScape has decent industry support. Volkswagen (OTCMKTS:VWAGY) is a major investor in the business. The battery maker says its batteries can charge from a low-charge state to 80% in just 15 minutes. They can also retain 80% of their charge after 800 cycles, which could power an EV for 240,000 miles. QuantumScape is also testing its prototypes with major clients.
The company has plenty of capital to survive for several years. That should be plenty of time to scale up and bring its safer, faster-charging batteries to market. In the meantime, the market is offering a discount on the stock, with shares down 60% from their 52-week high. For patient investors, QuantumScape could energize the risk-aware portion of your portfolio.
On the date of publication, Rich Duprey did not hold (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.