It’s been a good few days for battery stocks due to the July 11 announcement by QuantumScape (NYSE:QS) and PowerCo, Volkswagen Group’s (OTCMKTS:VWAGY) battery division.
Under the agreement, PowerCo will be able to mass produce solid-state lithium-metal batteries using QuantumScape’s planned QSE-5 technology platform. The non-exclusive license allows PowerCo to produce up to 80 gigawatt-hours (GWh) annually, enough for one million electric vehicles.
“With this cooperation, we aim to bring the most sustainable and cutting-edge battery cells to our customers,” said Frank Blome, CEO of PowerCo. “We have been collaborating and testing QuantumScape prototype cells for years now and we are looking forward to bringing this technology of the future into series production.”
Since the announcement, QuantumScape stock is up 65%, while the iShares Self-Driving EV and Tech ETF (NYSEARCA:IDRV) — QuantumScape is the fourth-largest holding with a 4.14% weighting — is also up since the announcement.
If you only can buy one battery stock in July, here are the three names you ought to consider.
QuantumScape (QS)
If it wasn’t for Bill Gates’ involvement in QuantumScape, I never would have paid any attention to the chronic money-loser. However, I don’t think you can underestimate the importance of this agreement with Volkswagen. It’s as close as the company’s gotten to a definitive production launch timeline.
If QuantumScape reaches certain technological milestones, it will get a $130 million royalty payment from PowerCo. Think of it as a retainer with future royalties credited to it. QuantumScape has generated no revenue since its inception, so this is a big deal.
The company reports Q2 2024 results July 24. As has become the norm, it isn’t expected to generate revenue in the quarter with a 23-cent loss, down from 26 cents a year earlier. As my InvestorPlace colleague Eddie Pan notes, through the first quarter, QuantumScape has an accumulated deficit of $3 billion.
While it’s going to require a ton of revenue in future years to whittle down that deficit, the $130 million payment will at least provide more cash for its research and development expenses, which are significant.
BYD (BYDDY)
Berkshire Hathaway (NYSE:aBRK-A, BRK-B) continues to trim its holdings in BYD (OTCMKTS:BYDDY) — it owns 6% of the stock, valued at nearly $2 billion — the Chinese holding company that got its start in 1995 as a battery manufacturer but now is equally known for its EV production. It founded BYD Auto in 2003 and is now the company’s biggest revenue generator.
In early July, CNBC reported that BYD is set to pass Tesla (NASDAQ:TSLA) in 2024, selling more BEVs (battery-electric vehicles) than Elon Musk’s baby. In 2023, BYD produced 1.6 million BEVs compared to 1.84 million for Tesla. That is expected to change in 2024,
Despite the tariffs worldwide on Chinese imports, BYD still manages to sell a lot of BEVs. In 2024, projections suggest that global BEV sales could reach 10 million, with BYD generating a significant portion.
As for batteries, speculation suggests the company’s second-generation Blade battery technology could have as much as 1,000 kilometers in range (600 miles), although that’s under less stringent testing standards.
If Americans are smart, they’ll push for BYD BEVs in the U.S. sooner rather than later.
EnerSys (ENS)
While the first two battery stocks are more consumer-focused, EnerSys (NYSE:ENS) competes in the industrial market providing uninterruptible power systems (UPS) for high-value infrastructure assets, motive power for operating forklifts and other industrial uses and premium batteries for industrial vehicles and energy storage.
The company’s three operating segments are Energy Systems (44% of fiscal 2024 revenue), Motive Power (41%) and Specialty (15%). Sales decreased 3.4% in fiscal 2024 (March year-end) to $3.58 billion, with operating earnings of $352 million, 26.3% higher than a year earlier. On an adjusted basis, its operating profits in the quarter were $450 million.
As part of its focus on commercial activities, EnerSys announced in November that it would stop producing residential renewable energy products, opting to focus on the industrial markets. It’s a smart move given the business it generates is tiny compared to its other businesses.
The company estimates that its SAM (serviceable addressable market) is over $30 billion, nearly 10x its current sales.
Based on its $8.35 EPS in 2024, it trades at a reasonable 12.8x those earnings. In 2024, its free cash flow was $371 million. Based on an enterprise value of $4.90 billion, it has a free cash flow yield of 7.6%.
Given its free cash flow continues to grow, EnerSys is a value play in my estimation.
On the date of publication, Will Ashworth 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
