The electric vehicle industry is going through challenging times. The concerns for the industry include competition and macroeconomic headwinds. As a result, global automakers are scaling back on their EV investment plans. From a price action perspective, EV stocks have trended lower and there are multiple undervalued stories. In my view, it’s a good time to buy for investors with a long-term horizon. This column specifically focuses on undervalued battery stocks to buy before the next rally. This has led to these 7 battery stocks to buy before the next big rally.
It’s worth noting that in 2022, EVs accounted for only 14% of new cars sold. There is ample scope for industry growth with policy tailwinds. It’s estimated that by 2030, more than 60% of new cars sold will be EVs. This will translate into significant demand for batteries.
To put things into perspective, the global demand for Li-ion battery is expected to increase from 700 GWh in 2022 to approximately 4.7 TWh by 2030. This will provide ample headroom for growth for some of the best battery players.
Let’s talk about 7 battery stocks to buy before the next big rally.
Panasonic Holdings (PCRFY)
With the broad EV sector being depressed, Panasonic Holdings (OTCMKTS:PCRFY) stock has done well. In the last 12 months, the stock has total returns of over 10%. It’s worth noting that PCRFY stock trades at a forward price-earnings ratio of 7.3. I would bet on the stock doubling within the next 24 months. At the same time, the blue-chip EV battery stock is worth holding until 2030.
On the innovation front, Panasonic is working on batteries with a silicon-based technology. This can give electric cars a 500-mile range and charge refills in 10 minutes. The Company is also working on solid-state batteries for drones and factory robots. This can open-up another big addressable market and boost long term growth. It’s one of the 7 battery stocks to buy before the next big rally.
Besides the innovation factor, Panasonic has ambitious EV battery capacity expansion plans. The Company plans to boost capacity to 200GWh by 2031. This would imply quadrupling of capacity as compared to the last financial year. The expansion plan provides revenue growth visibility in addition to potential EBITDA margin expansion in the coming years.
QuantumScape (QS)
QuantumScape (NYSE:QS) is a development stage company with focus on commercialization of solid-state batteries. With more than a decade of focus on research and development, the Company has 300 patents or patent applications. QuantumScape also claims to have agreements with six automotive OEMs.
Once the solid-state battery is commercialized, there is a strong platform for growth. I must add here that Volkswagen (OTCMKTS:VWAGY) is a strategic investor and joint venture partner in the Company. This adds to the credibility and makes QS stock an attractive investment after a deep correction in the last few years.
In a major business development, the Company recently shipped Alpha-2 prototype battery cells to automotive partners. This is a significant step towards the roadmap to deliver QSE-5 (first commercial product). With the Company targeting high-volume production of its solid-state electrolyte-separator in 2025, it’s not long before QS stock surges. This make it one of those 7 battery stocks to buy before the next big rally.
Solid Power (SLDP)
After a deep correction, Solid Power (NASDAQ:SLDP) stock has stabilized and remained sideways in the last six months. I believe that the worst is over for the stock and with positive business progress, I expect a big rally in the coming quarters.
As an overview, Solid Power is working towards the commercialization of solid-state batteries. The Company’s efforts are backed by automotive partners that include Ford (NYSE:F) and BMW (OTCMKTS:BMWYY). Recently, the Company also deepened its partnership with SK On. This will help in expansion in the Korean market.
Last year, Solid Power successfully delivered A-1 sample cells to automotive partners October 2023 for validation testing. This year, the focus is shifted to A-2 sample cells that are likely to be better in terms of safety and performance.
I also like the fact that Solid Power has been using its cash buffer conservatively. With $415 million in liquidity, there is ample flexibility to invest in research and development.
Lithium Americas (LAC)
Lithium Americas (NYSE:LAC) stock has advanced by 45% in the last one month. The reason being a funding commitment of $2.26 billion from the U.S. Department of Energy for the Thacker Pass project. I believe that the positive momentum for LAC stock is likely to sustain as the growth story remains undervalued.
It’s worth noting that the Thacker Pass asset will commence production in 2027. However, the market valuation of the Company is significantly lower as compared to the after-tax net present value of $5.7 billion. Over the next few years, the valuation gap is likely to be closed.
I must add that once the asset commences production, the average annual EBITDA visibility is $1.1 billion. This implies healthy cash flows over the long term with the asset life estimated at 40 years. The weakness in lithium price is therefore a golden opportunity to accumulate LAC stock.
Piedmont Lithium (PLL)
Piedmont Lithium (NASDAQ:PLL) is another massively undervalued lithium stock to buy. In the last 12 months, PLL stock has plunged by 75%. The correction is overdone and with a quality asset base, I expect multibagger returns from current levels. It’s a matter of holding the stock with patience through the lithium bear market.
Straight to valuations, Piedmont currently commands a market valuation of $252 million. This is miniscule as compared to the present value of the Company’s key assets. To put things into perspective, the Company’s Ghana asset has an after-tax NPV of $1.33 billion. Further, the Carolina and Tennessee asset have a combined after-tax NPV of $4.5 billion.
Of course, these assets require financing and that’s the key catalyst for PLL stock. The Company is looking for strategic partners for its U.S. assets. Once financing is secured for construction, I expect valuations to skyrocket. An important point to note is that Piedmont already has supply agreements with the likes of LG Chem and Tesla (NASDAQ:TSLA). Extended offtake agreements can provide clear cash flow visibility. This makes it one of those 7 battery stocks to buy before the next big rally.
Ford (F)
Among the traditional car companies, Ford (NYSE:F) has ambitious plans for transition towards a portfolio of EVs. The Company’s investment plans include setting-up EV battery plans. Before discussing that, it’s worth noting that F stock trades at a forward price-earnings ratio of 7.4. Further, the stock offers an attractive dividend yield of 4.4%. The blue-chip stock is worth accumulating at the current valuation gap.
In May 2021, Ford and SK On announced a joint venture to “produce approximately 60 GWh annually in traction battery cells and array modules.” It’s worth noting that Ford’s “global BEV plan calls for at least 240 gigawatt hours (GWh) of battery cell capacity by 2030.”
Therefore, there is ample scope for growth in the next five years. It’s worth noting that in November 2023, Ford scaled back plans for a $3.5 billion battery plant in Michigan. It does not come as a surprise with the recent slowdown in EV sales. However, Ford has ample financial flexibility to aggressively invest in multiple plans once growth gains traction.
Standard Lithium (SLI)
Let’s end the discussion on battery companies with a massively undervalued penny stock. Standard Lithium (NYSE:SLI) stock has plunged by almost 70% in the last 12 months and is worth considering at current levels. In my view, SLI stock is likely to deliver 10x to 20x returns by 2030.
To put things into perspective, Standard Lithium commands a current market valuation of $210 million. In comparison, the Company’s key asset has an after-tax net present value of $4.5 billion. If other assets are included, the after-tax NPV is likely to be more than $5 billion.
I believe that there are two impending catalysts for a massive rally. First, if lithium trends higher, sentiments will reverse for lithium stocks. Further, Standard Lithium needs financing of $1.2 billion for its key asset (South West Arkansas). Once the financing is secured, SLI stock is likely to go ballistic. It’s one of the 7 battery stocks to buy before the next big rally.
On the date of publication, Faisal Humayun 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.
