Electric vehicle (EV) technology is a major long-term growth opportunity. Yet finding the best way to invest in it isn't clear due to the wide variety of technologies, most of which are not in full-scale commercial production. But battery stocks are a good starting point; batteries are used across a wide spectrum of applications, not only in EVs but also renewable energy.
Not all next-gen battery companies will be selected by carmakers to move forward into large-scale manufacturing, owing to a combination of scalability, performance, and pricing. But here are three battery stock picks that have a combination of viable technology and attractive long-term growth potential:
- QuantumScape (QS -3.29%): Early innovator in solid-state batteries, with a strong balance sheet
- Solid Power (SLDP -6.10%): Ramping production capacity in the next couple of years.
- Lithium Americas (LAC): Canadian lithium miner with massive projects coming to completion.
QuantumScape is a leader in solid-state batteries
QuantumScape is arguably the leader in the development of solid-state batteries. Unlike traditional lithium-ion batteries, solid-state batteries use solid electrolytes, which significantly expand a battery's energy density while making it less costly. These batteries are being heralded as the primary technology catalyst for the next generation of EVs.
Production of solid-state batteries is still years away, but when QuantumScape can produce them on a mass scale, the company is poised to leverage a leadership position in a massive growing market.
In April 2021, just a few months after it went public, QuantumScape was hit by a short seller report by Scorpion Capital that questioned the company's technology claims. But by November, the company came back with some positive news: the release of 10-layer battery cell testing data showing 800 cycles at better than 1-hour charge rates at 25 degrees celsius. Simply put, QuantumScape had achieved its primary goal ahead of schedule, and only months after serious allegations were leveled against it.
QuantumScape stock has pulled back more than 60% year to date. That said, the company has delivered on all its core milestones, including testing its 10-layer cells. QuantumScape is now looking to test out multilayered cells with multiple commercial dimensions. Considering this is an early stage technology with high capital spending needs, it's important to point out that the company has close to $950 million in liquidity (IPO proceeds), which is enough to finance its operations through 2023 based on current cash burn.
Solid Power is backed by two automotive giants
Solid Power is a Colorado-based start-up working on commercializing solid-state batteries. In June, Solid Power began pilot production of solid-state batteries and could begin mass production by 2024.
Solid Power's cell designs are compatible with existing production processes and technology. The company's sulfide-based solid electrolytes are also touted to provide a balance of mass production and performance.
The company has the invested backing of two automotive giants: Ford and BMW. In June, Solid Power announced that it has completed the installation of its pilot production line. By the end of the year, the company expects to begin delivering battery cells for validation testing.
Unlike QuantumScape, its most notable competitor, Solid Power expects to generate revenue by year's end. The company has a goal of increasing production capacity to 30 metric tons this year and to reach a capacity of 6,000 metric tons within the next four years (6,000 metric tons equates to 100,000 EVs).
If SLDP's pre-production deliveries are within the timeline, the stock is likely to rise. Moreover, if validation testing yields positive results, the shares should see further upside in 2023. That said, expect continued volatility for this name (and the rest of the group) as investors react to test results, partnerships, and early releases.
Lithium Americas is developing some major mining projects
Lithium Americas is a Canadian lithium mining player that's poised to become a leader in the sector. The lithium market, which is largely dominated by Chile, Australia, and Argentina, is expected to rise exponentially in the next several years due to the growing demand for EVs. Lithium is a key component of LFP (lithium iron phosphate) batteries.
Lithium Americas does not yet produce any lithium, but it's developing three projects, two of which are located in Argentina and the other in Nevada. The company, which has been in the construction phase for the past several years, is now getting close to completion.
Lithium Americas has the potential to become one of the largest providers of lithium across multiple markets. The company continues to explore a separation of its U.S. and Argentina operations. If the separation plays out, it would make its U.S.-based operations particularly attractive, as Thacker Pass, where the operations exist, is the largest known lithium resource in the U.S. As North American carmakers look to consolidate their supply chain among domestic suppliers, a pure-play U.S. asset is particularly attractive.