Energy storage has long been a high-potential industry as the cost of batteries and other technologies fall rapidly and new intermittent electricity sources like wind and solar proliferate on the grid. But only recently has energy storage been financially viable for everyone from homeowners to utilities.
As this industry evolves, there are multiple ways to invest in this growing segment of renewable energy stocks, including with a company like Tesla (TSLA -0.19%). But Tesla only gets a small percentage of its revenue from energy storage and there may be better ways to invest in growth for the industry.
As an early investor in innovative technologies, including energy storage, ARK Invest CEO Cathie Wood counts Tesla as a top holding in her ARK Innovation ETF. But three Fool.com contributors think Bloom Energy (BE -0.90%), Enphase Energy (ENPH 1.15%), and Lucid Motors (LCID -2.24%) are even better energy storage buys for investors than Tesla.
The fuel cell leader
Travis Hoium (Bloom Energy): Most energy storage companies today are focused on battery storage, but there's a huge long-term opportunity in what's called long-duration energy storage. This is the storage of energy for days, weeks, or months, not the normal short-term storage that batteries provide. And long-duration storage requires different technology than batteries. That's why hydrogen company Bloom Energy is so attractive in this space.
Bloom Energy makes what's called a solid oxide fuel cell, which uses a solid, ceramic material as its electrolyte. This is lower-cost than competing proton exchange membrane fuel cells for large energy storage applications for commercial buildings, utilities, or even the shipping industry.
Management thinks the total market opportunity for Bloom Energy's technology is over $2 trillion, including $300 billion for hydrogen alone. And you can see below that the company is already generating more revenue and a better gross margin than its biggest fuel cell competitors.
Like most energy storage companies, Bloom Energy is still a speculative and risky investment. But the company has the opportunity to disrupt energy storage with hydrogen products and even enter new markets like shipping, trucking, and long-duration utility-scale storage. These could open up huge markets and with market-leading operations, and I think this is the best bet on energy storage today.
Storage is a new part of this solar system
Howard Smith (Enphase Energy): An investor who likes Tesla must be comfortable with owning a growing company richly priced based on potential more than current business fundamentals. If it's the energy storage part of the company that garners that interest, Enphase Energy is another fast-growing company with a rich valuation that is just ramping up the battery storage system portion of its business.
Enphase makes solar system microinverters, the components that convert energy at the solar panel from direct current power into the alternating current used in the home or business, as well as associated software and other system technologies. It has increased revenue by 250% on a trailing-12-month basis over the last three years. Because it is the early stages of expansion in what is expected to be a fast-growing solar energy market, investors jumped into the stock driving gains far outpacing the company's revenue growth. Shares have soared more than 3,200% in that same time period.
The company added scalable battery storage systems to its offerings in June 2020. One year later, Enphase expanded the product internationally, beginning with a launch of the systems in Germany. The battery storage integrates into Enphase's entire solar system. Updates and new features are added online, and homeowners can use the app for load control to conserve battery power. It also tracks overall system status including how much power solar panels are producing, as well as the breakdown of it being consumed, sent back to the grid, or to charge the storage battery.
Having everything integrated in one system simplifies the offering to the home or business owner. Storage should only boost Enphase's business results going forward. And business has already recovered from a pandemic-related slowdown. In its second-quarter earnings report, Enphase provided guidance for the current quarter that implies revenue growth to be 93% over last year's pandemic-impacted third quarter. And those results would mean a 9% bump sequentially over second-quarter 2021 revenue at the midpoint of the outlook.
Like Tesla, Enphase's stock is trading at a level that anticipates the previously discussed growth. According to data by YCharts, shares are trading at a forward price-to-earnings ratio of 80, and a price-to-sales ratio of about 21. That's pricy, but as solar generation continues to expand, Enphase is in a fine position with a fully integrated system for homes and businesses to continue accelerating growth.
A fresh new way to play the EV space
Daniel Foelber (Lucid Motors): Up-and-coming electric vehicle company Lucid Motors gets most of its attention from its Lucid Air sedan. But the company also has an interesting storage business that could contribute meaningful results over the medium to long term.
Energy storage systems, or ESS, are expected to become one of three divisions. It's in early stages, but ESS will target residential, commercial, and utility-scale customers mainly through the sale of battery packs and battery management systems.
In its July presentation, Lucid updated investors with news that it built a solar farm on the roof of its headquarters in order to test its energy storage alpha prototype. The next step is a larger pilot project focused on installing a similar solar system at the company's manufacturing facility (AMP-1) in Casa Grande, Arizona. The ESS division is young, but it's worth remembering that the company's roots are in battery storage technology. That competitive advantage and experience is the main reason why Lucid has been able to produce a car with such impressive specifications.
The most expensive of the four trims, the Lucid Air Dream Edition, is expected to begin mass production and customer deliveries before year-end. Its specs were put to the test last week when Motor Trend's Jonny Lieberman test drove the 2022 Lucid Air Dream Edition R from Los Angeles to San Francisco, with Lucid CEO Peter Rawlinson riding behind him. Lieberman's rave review indicated that Lucid has, indeed, built a phenomenal car.
Lucid has proven its tech prowess, but production and supply chain efficiency are two entirely different skills that it has yet to demonstrate. However, Lucid has the potential to be a game-changing competitor to Tesla in the energy storage and luxury EV industry. That's right up Cathie Wood's alley, making Lucid a high-risk, high-reward growth stock worth considering now.
Energy storage has a bright future
Storing energy is going to become increasingly valuable over the next decade as intermittent energy sources come online, backup power becomes more valuable, and consumers want to self-consume more of their energy. These will all be tailwinds for the industry and we think Bloom Energy, Enphase Energy, and Lucid Motors could be big winners in the space.