Global electric car sales more than doubled to 6.6 million in 2021 versus 2020 and represented nearly 9% of the total global car market, according to the International Energy Agency (IEA). Compare that with 2019 when electric cars made up only 2.5% of the global car market, and it becomes evident that demand for electric vehicles (EVs) is growing exponentially.
As the EV industry grows, so should the supply and ancillary side of the equation. Batteries, for example, are the most important component in EVs, which explains why prices of lithium -- the key metal that's used to make EV batteries -- are hitting record highs. At the same time, those batteries and EVs would be rendered useless if there's no robust charging infrastructure to recharge those EV batteries.
Investors looking to play the EV boom, therefore, can not only invest in shares of EV manufacturers, but also in lithium and EV charging stocks. Which among these is a better buy right now, though? Here's a case for both sides and promising stocks within each industry to help you decide.
Sales are already accelerating
Howard Smith (EV charging stocks): It's clear that EVs will be a big business, but it's far from clear who the big winners will be for investors. Some of the EV manufacturers have already attracted enough investor interest to be priced for a level of success that may not materialize. It makes sense to look at ancillary businesses that will also benefit. That's the so-called "picks and shovels" approach.
Lithium is needed for EV batteries, and charging networks will have to become ubiquitous for the amount of EV penetration that is predicted for the transportation sector. The International Energy Agency (IEA) estimates that global EV sales will soar from 3.1 million in 2020 to at least 25 million by 2025, or even closer to 50 million if governments support more sustainability initiatives.
Image source: Getty Images.
There are already several charging network companies with quickly growing sales and established businesses. While these are still high-risk, speculative investments, investors at least have some visibility into the underlying businesses and case for investing. While still not profitable, several charging network companies are experiencing sharp revenue growth. The below table shows year-over-year growth for the first nine months of 2021 for ChargePoint Holdings (CHPT -1.47%), Volta Charging (VLTA), EVgo (EVGO 0.57%), and Blink Charging (BLNK 2.17%).
| Metric | ChargePoint | Volta | EVgo | Blink |
|---|---|---|---|---|
| Revenue growth* | 55% | 82% | 79% | 244% |
*Year over year for first nine months of 2021 versus 2020. Data source: Company financial statements.
While some of those growth rates are off very low base levels, ChargePoint just reported full year 2021 revenue of $242.3 million.. That reflects a well-established business. ChargePoint is on a growth path in both North America and Europe that has shown it can successfully grow its footprint geographically, too.
Investing in either lithium stocks or charging network companies carries many risks. Both sectors still need to prove that strong EV demand can result in profitable business strategies. But charging companies are already growing based on that demand alone, and have plenty of runway left for expansion. That makes charging companies look like a better approach for aggressive investors wanting exposure to the growing EV market.
Lithium is the default choice for most EV battery makers
Neha Chamaria (Lithium stocks): One glimpse at the performance of the world's first lithium exchange-traded fund (ETF), Global X Lithium & Battery Tech ETF (LIT 0.02%), reveals how rapidly investor interest in lithium stocks has picked up in just a couple of years. Yet, this could just be the beginning of golden days for lithium stocks.
Most EVs and plug-in hybrid vehicles out on the roads today run on lithium-ion batteries, and the pace of adoption of EVs has been so strong that miners are scrambling to boost production. Yet, the process of extraction of lithium -- whether from hard rock or brine -- requires at least three years of capital spending before reaching the production stage. In other words, it's not easy to increase lithium supply, and even when that happens, demand for lithium should rise alongside.
For example, S&P Global Market Intelligence estimates the supply of lithium carbonate equivalent will rise to 636,000 metric tons this year from just under 500,000 metric tons (mt) in 2021. Yet, it also expects demand to jump to 641,000 mt. That demand-supply gap should not only support lithium prices but also be the biggest growth catalyst for lithium stocks.
The world's largest lithium miners corroborate this projection. Albemarle (ALB 1.71%), one of the world's largest lithium mining companies, just upgraded its lithium demand forecast and now projects demand for lithium carbonate equivalent to jump from just about 0.3 million mt in 2020 to 1.5 million mt by 2025 and 3.2 million mt by 2030, driven almost entirely by the EV industry.
Although Albemarle also deals in catalysts and bromine specialties, it spotted opportunities in lithium early and invested aggressively, such that 41% of its net sales came from lithium in 2021. Albemarle expects to realize 40% to 45% higher average lithium prices in 2022.
When a large, experienced, and resource-rich miner like Albemarle turns so bullish about lithium but still says "meeting this demand will be a challenge," you'd not want to miss any opportunities for investing in lithium.
The better bet
Whether you invest in lithium or EV charging stocks, both give you exposure to the EV industry and have strong growth potential. The one point you might want to note here, though, is that while EV charging stocks are a pure-play on EVs, only a handful of companies deal purely in lithium. Even then, a booming EV industry is just one of the growth catalysts for them. So while there's money to be made in both, what stocks you pick depends on whether you want to invest in a product that caters exclusively to EVs or one that has more uses.
