Batteries are perhaps the most important part of the electric vehicle (EV) ecosystem, in some cases accounting for almost half of a car’s value. And it will require improvements on current battery technology to get EVs fully on par with traditional internal combustion engine (ICE) models. Here are the potential winners of the battery stock race.
Frequently Asked Questions
1. What are the Top Battery Stocks to Buy?
The answer is: it depends. Different battery stocks are suitable for different investors.
Two of the best battery stocks are cutting-edge players like QuantumScape (NYSE:QS) and Romeo Power (NYSE:RMO). Both companies are pure plays on electric batteries. Both stocks also look exceedingly expensive relative to their near-term revenues. Each would be characterized as high-risk and high-reward, suitable for aggressive EV bulls with tolerance for potential downside risk.
More conservative investors should look to established companies, among them Panasonic (OTCMKTS:PCRFY) and Samsung SDI (OTCMKTS:SSDIY). For these companies, EV batteries offer growth potential, but they also have other revenue streams to rely on. Valuations are also are more reasonable, meaning lower risk for investor losses.
2. Are Battery Stocks a Good Investment?
Electric vehicle adoption is likely to accelerate in coming years. Governments in Europe and Asia already heavily subsidize EVs, and even the U.S. looks set to make up lost ground. Private companies too increasingly are aware of minimizing their environmental and carbon “footprints.” Even major oil companies have set zero-carbon targets (albeit several decades out).
Ahead of the transition to EVs, investors should consider legacy ICE manufacturers as well as newer players. China’s BYD Motors (OTCMKTS:BYDDF) and General Motors (NYSE:GM), which is developing its Ultium platform, both are moving aggressively into batteries. For those companies, battery revenues and profits can augment sales of EVs, as well as offset declining production of ICE vehicles.
3. Are Battery Stocks Safe?
Investors shouldn’t ignore the risk/reward calculation of battery stocks. Big rallies can mean pullbacks, even for the companies that eventually dominate.
That means derivative companies can play a major diversification role. Albemarle (NYSE:ALB), for instance, doesn’t make batteries. Rather, it mines the lithium required to manufacture batteries, providing some downside protection if lithium-ion batteries are slower to take off.
Investors looking for diversification can look beyond batteries as well. Plug Power (NASDAQ:PLUG) began as a manufacturer of hydrogen-powered forklifts. It’s now expanding toward leading the entire “green hydrogen” economy. If hydrogen fuel cells displace lithium-ion batteries, PLUG stock could soar, while lithium-ion battery makers disappoint.
It’s far too early to predict the exact winners of the battery revolution. But that also means rewards for those who choose correctly.