Energy storage and transportation has long been one of the greatest challenges for the energy industry. Oil is such a great source of energy because it's easily transported around the world and has a high density of energy. Natural gas hasn't been as widely used because it isn't as easy to store or transport, which is a big reason why the world doesn't run on natural gas vehicles.

But the energy industry is changing rapidly and the future of energy likely lies outside of these traditional fossil fuels. More and more industries are looking for ways to efficiently store energy and the same battery that's in the device you're reading this on may play a big role in transforming the entire energy industry.

The electrical vehicle revolution
The most visible change in how we use energy can be seen in concept and production cars from automakers. Electric vehicles have been the talk of the auto industry for nearly a decade, but it wasn't until Tesla Motors (NASDAQ: TSLA) made the Model S that we really saw the potential of EVs emerge. The Model S was the first car that could fit a family, travel 265 miles on a charge, and provide performance usually reserved for sports cars.

Tsla Battery Image

Tesla Model S battery pack, made of lithium ion batteries and integrated into the vehicle's frame.

The success of Tesla hasn't gone unnoticed, with GM, Ford, and Nissan following its lead aggressively. By the end of the decade, every major automaker will have an electric vehicle offering and the batteries at the core of those vehicles are key for advancement. Right now, the lithium ion battery is what powers electric vehicles and in the near future this battery technology will only grow in popularity.

Energy storage
Batteries have also emerged as a great way to store electric energy for commercial or home use. The same lithium ion batteries that power your computer and power a Tesla Model S are now being turned into energy storage devices for Tesla's sister company SolarCity (NASDAQ:SCTY). The product is initially being offered to commercial customers and is paid for by offsetting demand charges or peak energy costs, but the road map for solar and energy storage is easy to see. Solar power is an intermittent power source and a place to store energy would smooth out supply and demand, potentially even making going off-grid a possibility.

Scty Storage Inverter Highrez

SolarCity's energy storage pack using Tesla Motors' technology. Image courtesy of SolarCity.

SolarCity isn't the only one looking into batteries as a way to grow solar. SunPower (NASDAQ:SPWR) has multiple test locations up and running and CEO Tom Werner told me a few months ago that they would likely partner with another company to build energy storage systems.  

Electric vehicles are a big potential market for batteries but energy storage may be even bigger. It's reasonable to predict that a 100 kW-hr or larger system will be commonplace in homes within the decade, opening up a huge market for battery makers.

Who is making all of these batteries?
There were once a few ways to play the future of auto batteries, but they've long since flamed out. Ener1  and A123 Systems  filed for bankruptcy before the potential of their markets could be achieved and any remnants are now under private ownership.

What's emerged is a battery industry dominated by more established companies. Panasonic (NASDAQOTH:PCRFY) makes batteries for both Tesla and SolarCity, giving it a great position in this emerging market. LG Chem has partnered with GM and Ford on the Chevy Volt and Focus Electric, respectively, just two of many EV partnerships.  

One interesting company to watch is Johnson Controls (NYSE:JCI), which is known more for traditional lead-acid batteries than lithium ion batteries. That could change soon because Johnson Controls is launching a lithium ion system it says packs more energy into a smaller space than traditional lithium ion batteries.

Building out battery manufacturing facilities is capital intensive so I'd rather bet on multinational corporations surviving long term than start-ups. Panasonic, LG Chem, and Johnson Controls look like three long-term winners if EVs and energy storage take off.

The future of batteries
What's interesting about all of these companies developing battery solutions is that they're using essentially the same lithium ion batteries you have in your phone, tablet, and computer. Their sizes are different and the way energy is managed has to change but the fundamental technology is the same.

The technology may change in the future but for now the lithium ion battery is the best hope we have in reshaping the auto industry and energy storage. Tesla, SolarCity, and SunPower will be leaders in deploying the technology to end markets while Panasonic, LG Chem, and Johnson Controls are the best ways to play manufacturing and new technology. This is a high-potential industry and investors would be wise to keep an eye on how it plays out.

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Fool contributor Travis Hoium manages an account that owns shares of Ford and SunPower and personally owns shares of SunPower and has the following options: long January 2015 $5 calls on SunPower, long January 2015 $7 calls on SunPower, long January 2015 $15 calls on SunPower, long January 2015 $25 calls on SunPower, and long January 2015 $40 calls on SunPower. The Motley Fool recommends General Motors. It recommends and owns shares of Ford, SolarCity, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.