According to the International Energy Agency, batteries typically account for 30% to 40% of the value of electric vehicles. This fact, in itself, underscores the point that investing in the best battery stocks is essential for investors who are bullish on electric vehicles. After EV stocks underwent a significant correction , it seems like a good time to buy battery stocks.
Adding some more data, the electric-vehicle battery market is expected to grow at a compound annual growth rate of 28% through 2028. With many countries adopting ambitious EV sales targets beyond this period, the demand for batteries will remain robust well into the 2030s.
Lithium-ion battery stocks have benefitted from the rapid growth of the EV market. At the same time, lithium miners are positioned to benefit as the demand for batteries surges and lithium prices skyrocket. Another interesting theme within the EV battery space is the development of solid-state batteries.
This column outlines seven of the best battery stocks that are worth considering at their current levels.
Panasonic Holdings (PCRFY)
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Panasonic (OTCMKTS:PCRFY) stock has underperformed the market so far in 2022. The stock, however, looks attractive as it’s trading at a forward price-earnings ratio of 9.5. Additionally, the battery stock offers a healthy dividend yield of 3.5%.
Panasonic is likely to remain a key player in the battery market due to its ongoing innovation. The company is planning to increase the energy density of its batteries by 20% by 2030. The innovation factor is a key reason why I included PCRFY in this column.
The company is also making some big investments which will ensure that it continues to grow steadily. In July 2022, Panasonic announced plans to invest $4 billion to build a new plant in Kansas. The company is looking to invest an additional $4 billion in an Oklahoma factory. These investments will cause its earnings growth to accelerate and help Panasonic maintain its market share.
After undergoing a deep correction, the stock seems to be bottoming out. This may be the best time for long-term investors to consider taking a bullish position in Panasonic.
Solid Power (SLDP)
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After describing an established player in the battery industry, I will write about an emerging gem. Solid Power (NASDAQ:SLDP) stock seems undervalued at its current level of $4.96. If the company’s solid-state battery is utilized in EVs, the stock can soar by hundreds of percent.
Solid Power believes that the battery it’s developing will be safer and provide more energy than today’s lithium-ion batteries. Solid Power’s product is also likely to cost less than lithium-ion batteries.
It’s worth noting that the company has already established a pilot production line for solid-state cells.
By the end of the year, these silicon EV cells will be delivered to Solid Power’s automotive partners for testing. The company’s automotive partners, which have also invested in SLDP, include Ford (NYSE:F) and BMW (OTCMKTS:BMWYY). And because Solid Power is partnering with automotive giants, it has no financial constraints.
The results of the tests of Solid Power’s battery could be a positive catalyst for SLDP stock in 2023. And any positive news is likely to send the stock skyrocketing.
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QuantumScape (NYSE:QS) is another emerging player in the solid-state battery space. With commercialization of the company’s batteries still a few years away, QS stock has steeply declined mid the correction of EV stocks. The stock, however, looks attractive at its current level of $8.20.
Truist Securities recently initiated coverage of the stock with a price target of $10. Truist believes that QuantumScape is “on the path to advance the rapidly growing EV battery industry with its proprietary solid-state technology.”
It’s worth mentioning that Volkswagen (OTCMKTS:VWAGY) is one of the investors in QuantumScape. Further, QuantumScape claims that six automakers have agreed to test its battery. Once the company’s batteries are utilized in EVs, its growth is likely to be robust.
QuantumScape expects to close the financial year with $950 million of cash. Therefore, the company probably won’t need to sell any additional shares of its stock in the next 12-18 months. Investors will continue to focus on the progress of its batteries. Positive news on that front is likely to trigger a sharp reversal rally by QS stock.
Albemarle Corporation (ALB)
Lithium prices have again been surging on shortage concerns, making the shares of lithium producers more attractive. Albemarle Corporation (NYSE:ALB) stock is a top pick in he sector as its forward price-earnings ratio is only 12.2.
Albemarle is one of the top producers of lithium in the world. For Q2, the company reported that its lithium sales had soared 178% year-on-year-to $891.5 million. In the same period, the segment’s EBITDA surged 352% YOY to $495.2 million.
Clearly, given the unit’s robust EBITDA margins, it is likely to be a cash cow for the company. Albemarle also stated that it expects its 2022 EBITDA, excluding some items, to come in at $3.2 billion to $3.5 billion, up from its previous outlook of $2.2 billion to $2.5 billion.
It’s worth noting that Albemarle reported that its lithium conversion capacity had reached 88,000 mt per year in Q1 2022. By 2025, the company expects to increase its capacity to 200,000 mt/year. The higher capacity and stronger demand should ensure that its cash flows continue to swell.
Lithium Americas (LAC)
Lithium Americas (NYSE:LAC) stock is another lithium mining company that I view as being among the best battery stocks.
LAC has potentially game-changing lithium assets in the U.S. and Argentina. The company’s Thacker Pass mine has the largest lithium reserves in the U.S. The net present value of the mine (after tax) is $2.6 billion. If lithium prices continue to trend higher, the NPV estimate will be revised higher.
Lithium Americas also has a 44.8% stake in the Cauchari-Olaroz mine in Argentina. With an estimated life of 40 years, the asset is expected to deliver average annual EBITDA of $308 million. Clearly, once these mines start delivering lithium, the company is well-positioned to generate healthy EBITDA growth for a long time.
LAC stock has declined by 20% so far in 2022. This correction seems to have created a good opportunity to buy the stock.
Microvast Holdings (MVST)
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Microvast (NASDAQ:MVST) stock has tumbled almost 70% in 2022. The stock looks attractive after its deep correction.
Microvast is a designer and developer of lithium-ion batteries. The company is focused on the commercial vehicle sector, differentiating it from its emerging peers.
The company has a contracted backlog of $2.5 billion through 2030. That makes its revenue outlook for the coming years highly visible. Considering the EV industry’s growth, it’s very likely that its backlog will continue to increase.
Besides the backlog, Microvast’s focus on research and development is a reason to like the stock. The company already has 630 patents or patent applications. It is also looking to expand its addressable market by targeting the passenger vehicle, energy storage and battery component markets.
For the first half of 2022, Microvast reported revenue of $101 million. MVST’s revenue growth has been robust, but the company’s operating losses have significantly increased. As a result, it may have to sell additional stock. However, even considering this factor, MVST stock seems oversold.
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Ford (NYSE:F) is aggressively expanding its electric-vehicle offerings. In order to do so, it has invested a great deal of money in setting up battery plants. F stock has been trending lower this year. However, trading at a forward price-earnings ratio of 5.7, the stock seems attractively priced.
Ford and SK Innovation have formed a joint venture, which will be called BlueOvalSK. The JV will “develop and industrialize battery cells at scale.”
It’s worth mentioning that Ford needs at least 240 gigawatt hours (GWh) of battery cell capacity by 2030. Therefore, to secure battery capacity, F will probably have continue to invest in this joint venture.
Ford already has invested in Solid Power, and that deal will help the company secure additional battery capacity. Additionally, the value of Ford’s stake in Solid Power can significantly increase once the latter company commercializes its solid-state batteries.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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