Otis Singleton
Electric vehicles (EVs) are becoming increasingly popular, with global sales reaching 10.5 million in 2022. As the world moves towards net zero and a reduction in fossil fuel consumption, the demand for EVs is expected to surge. This will drive higher EV battery sales, benefiting companies focused on making them. Investing in EV battery producers can be strategic, but it is a tricky proposition. There are hundreds of companies to choose from, and the odds of picking the right one are not great. However, investors can consider adding battery makers to their portfolio and investing in derivative companies, such as plastic battery coating manufacturers and high-voltage chip manufacturers.
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What You'll Learn
The high cost of EV batteries
Overall, the high cost of EV batteries is a critical factor in the electric vehicle industry, affecting automakers, consumers, and the development of new technologies. While there are efforts to reduce costs and improve affordability, the high price of EV batteries remains a challenge and a key consideration for investors and stakeholders in the EV market.
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Companies to invest in
The electric vehicle (EV) market has been growing substantially, and it is expected to continue its rise over the next decade. The shift to electric vehicles is driven by government regulations that limit carbon emissions. This has led to many companies vying for a piece of the EV market, from automakers to parts and component suppliers.
When it comes to investing in EV battery stocks, it is essential to consider your goals and risk tolerance. Here are some companies to consider for investment:
Automakers
- BYD Company Limited: This Chinese conglomerate has seen impressive sales of its electric cars, surpassing Tesla in the fourth quarter of 2023. BYD is the leading manufacturer of electric vehicles, and its stock is favoured by Warren Buffett's Berkshire Hathaway.
- Tesla (TSLA): Tesla has established itself as a leading EV maker, making electric vehicles mainstream. While the stock is expensive, it is well-positioned to benefit from developments in the battery industry and renewable energy. Tesla's Powerwall product, a compact home battery that stores energy from the sun, is particularly notable for battery investors.
- Rivian Automotive (RIVN): Rivian is another EV manufacturer that has gained attention in the industry.
- NIO (NIO): NIO is an EV manufacturer that has been competing with Tesla in the electric vehicle space.
- Li Auto (LI): Li Auto produces electric vehicles and is known for its batteries, which are also used in traditional vehicles.
- Nikola (NKLA): Nikola is an EV manufacturer that has been gaining traction in the industry.
Battery Suppliers
- Panasonic: Panasonic is a well-known company that produces batteries for electric vehicles. They have a joint venture with Toyota called Toyota Battery, which plans to ramp up electric vehicle production.
- Albemarle: Albemarle is a specialty chemicals company that produces lithium compounds used in lithium batteries for EVs. As the demand for EVs increases, Albemarle is expected to benefit from growing sales.
- Plug Power: Plug Power manufactures hydrogen fuel cell batteries used in electric vehicles and other electronic equipment. Their batteries are also used outside the automotive industry, providing a diverse portfolio for investors.
- Enphase: Enphase has been expanding its operations in Europe and offers battery products that help homeowners minimize their energy costs. The company's recent financial performance suggests an upswing in its stock.
- EnerSys: EnerSys has been working on initiatives to boost its market share in the battery industry. Their Wi-iQ product has become the new standard for Motive Power products in North America, providing real-time analytics to optimize energy use and extend asset life.
- QuantumScape: Backed by Bill Gates and Jeremy Grantham, QuantumScape has seen fluctuations in its market value but remains a player in the solid-state battery space.
- Solid Power: This company has partnerships with Ford and BMW and is also focused on solid-state battery technology.
- Honeywell: Honeywell offers a range of renewable and energy storage solutions, including a cost-effective Battery Energy Storage System that helps companies manage battery usage and recycling.
Exchange-Traded Funds (ETFs)
If you want to diversify your investment and reduce risk, you can consider investing in ETFs that hold a variety of EV and battery stocks:
- QCLN: This ETF includes companies with green technology offerings, such as Tesla.
- LIT: Global X Lithium (LIT) tracks lithium suppliers and battery companies, including Albemarle Corp. and Ganfeng Lithium Co. Ltd-A.
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ETFs and funds
Exchange-traded funds (ETFs) are a strategic tool for investors looking to capitalise on opportunities within the global EV sector. The EV ecosystem is broad, including many industries, so investing in an ETF can be a more balanced approach than betting on individual companies. ETFs that track EVs are possible opportunities for investors to purchase shares in funds that track electric vehicle industry development.
There are several ETFs that include electric vehicle stock and supplier stock. The First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) includes Tesla among its holdings, as well as other companies with green technology offerings. Global X Lithium (LIT) tracks lithium suppliers and battery companies, with significant holdings including Albemarle Corp., Yunnan Energy-A Ltd., and Ganfeng Lithium Co. Ltd-A. Global X Lithium & Battery Tech ETF tracks the performance of the Solactive Global Lithium Index by investing in a variety of lithium companies, including leading lithium, bromine, and catalyst solution producer Albemarle. Other top holdings include Eve Energy, Contemporary Amperex Technology, and LG Chem.
The Global X China Electric Vehicle and Battery ETF seeks to invest in Chinese companies positioned to benefit from increasing EV penetration, including companies that produce EVs, EV components such as lithium batteries, equipment for battery production, and critical battery materials such as lithium and cobalt. The KraneShares Electric Vehicles & Future Mobility ETF tracks the Bloomberg Electric Vehicles Index, with top holdings including Contemporary Amperex Technology, Tesla, NIO, and BYD.
Investors should pay close attention to valuations on EV-related stocks, which may easily become stretched in such a hot sector. While a diversified sector ETF can protect against blow-ups in individual stocks, it won't protect against a sector-wide fall. Before investing, it is important to review the fund's prospectus to better understand the investment strategy, holdings, and fees.
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Solid-state batteries
Toyota, a leading global car manufacturer, is currently developing solid-state battery technology. The company plans to start producing solid-state batteries in 2026, aiming to ramp up its fully electric vehicle production to 1 million units by 2030. This move by Toyota showcases its commitment to catching up with the competition in the EV market.
Another company working on solid-state battery technology is QuantumScape. They are investing heavily to bring their technology to market and have already delivered prototype battery samples to EV automakers, receiving positive feedback on their performance. QuantumScape aims to start producing more than 200,000 batteries annually, but it is important to note that they are not expected to generate meaningful commercial sales until 2026. Investing in pre-revenue companies like QuantumScape carries a certain level of risk.
Solid Power is another solid-state battery developer that has gained recognition. In 2024, the company received a $50 million award from the U.S. Department of Energy to produce its electrolyte materials for solid-state batteries. Solid Power aims to expand its electrolyte production capacity significantly by 2026 and has the backing of prominent automakers like Ford and BMW. However, there is a risk that their technology may not perform as expected or that competitors could surpass them.
Investing in solid-state battery technology offers the potential for high returns, but it is essential to remember that these investments come with above-average volatility due to the emerging nature of the technology. The success of solid-state batteries will depend on factors such as performance, cost, and the ability to meet the challenges of mass production.
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Battery chemistry
Lithium-ion batteries, produced by companies such as Polypore International and Plug Power, are widely used in electric vehicles and other electronic devices. Lithium is a key element in these batteries, and suppliers like Sociedad Quimica y Minera de Chile (SQM) play a vital role in the EV industry. Lithium-ion batteries offer high energy density and have seen advancements in technology, leading to a decrease in prices. However, they face competition from alternative chemistries that aim to address some of their limitations.
Nickel-manganese-cobalt (NMC) batteries are commonly found in American and European electric cars. NMC batteries offer longer ranges, which is an important consideration for EV buyers in these markets. However, they are more expensive due to the use of pricey nickel and cobalt, and they have raised safety concerns due to their high flammability.
Lithium iron phosphate (LFP) batteries, on the other hand, have gained popularity, especially in China. LFP batteries are 20% cheaper than NMC batteries because they use iron instead of nickel and cobalt. They also have a lower fire risk and a longer lifespan, making them a more affordable and safer option. The trade-off is that they offer a shorter range per charge, but this has been partially mitigated by Chinese companies, who have managed to pack LFP cells closer together to increase energy density and range.
Solid-state batteries are being touted as a potential game-changer in the EV industry. Toyota, for instance, has acquired its battery joint venture with Panasonic and plans to ramp up production of electric vehicles powered by solid-state batteries. These batteries offer several benefits, including extended range, faster charging, and enhanced safety due to the absence of flammable liquid electrolytes. However, solid-state batteries have faced technical challenges in moving from lab-scale to mass production, and existing lithium-based chemistries continue to improve, making the competition more intense.
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Frequently asked questions
Some companies specializing in EV batteries include Panasonic, QuantumScape, Solid Power, and FREYR Battery. There are also companies that produce derivative products, such as plastic battery coating manufacturers (e.g., Japan's TDK) and high-voltage chip manufacturers.
Significant ETFs that include exposure to electric vehicle and battery stocks include QCLN and LIT. QCLN includes holdings in Tesla and other companies with green technology offerings, while LIT tracks lithium suppliers and battery companies, including Albemarle Corp. and Ganfeng Lithium Co. Ltd-A.
Investing in EV batteries can be a tricky proposition due to the sheer number of companies to choose from and the already high valuations of many of these companies. It's important to consider your investment goals and risk tolerance, as investments in emerging technologies like EV batteries may exhibit above-average volatility.
The demand for electric vehicles is expected to surge, and batteries are one of the most important and costly components of EVs. As sales of EVs accelerate, there will be higher battery sales, benefiting companies focused on manufacturing batteries. Additionally, advancements in technology and a decline in metal prices are expected to push battery prices lower, making EVs more affordable and increasing demand.
Solid-state batteries are expected to be a game-changer in the EV industry due to their higher energy density, faster charging, and increased safety. Several companies, including Toyota, Nissan, and Dongfeng Motor Corporation, are developing solid-state batteries, with expected launch dates ranging from 2026 to 2028.
