The battery market has been witnessing a steady transformation with climate change becoming a pressing concern across the globe. As an important move in meeting global goals on climate change, more and more people are shifting toward electric vehicles (EVs) and clean emission. Moreover, the growing cost-effectiveness of lithium-ion batteries is a major factor in the rise in production for EVs. California recently announced that it will ban sales of new gasoline- and diesel-powered cars and trucks in the state by 2035.
There has been growing excitement among the investors about the world gradually going electric. The skyrocketing performance of battery stocks is evident from The Global X Lithium & Battery Tech ETF’s (LIT) 75% gain in the last six months. Moreover, presidential candidate Biden plans a massive $2 trillion green infrastructure and jobs plan over his first term in office. If elected, Biden’s plan would push to make commuter trains, and passenger vehicles run on electricity or clean energy.
Hence, it could be a good idea to add Tesla, Inc. (TSLA), Albemarle Corporation (ALB), Livent Corporation (LTHM) and Lithium Americas Corp. (LAC) to your portfolio. Each of these stocks are fundamentally sound and are working on EV batteries.
Tesla, Inc. (TSLA)
TSLA designs, develops, manufactures, and sells electric vehicles, electric vehicle powertrain components, and stationary energy storage systems in the United States, China, and internationally. It is the world’s only fully integrated sustainable energy company.
CleanSpark software and services company recently partnered with TSLA to use its batteries for a Microgrid project in South America. Moreover, TSLA has planned expansion of its small scale battery manufacturing capabilities in Fremont and is reportedly considering building a battery factory in Indonesia to ensure a steady supply of nickel, a key component in manufacturing car batteries.
At its Battery Day event last month, TSLA unveiled battery construction innovations, factory details, and future cheaper models. Musk’s presentation centered around TSLA’s innovative “tabless” 4680 battery cells, a simple-sounding design tweak that reduces the cost while boosting the performance of its batteries. Moreover, the company detailed its plan to ramp up production of its own battery cells to 200 GWh of annual production capacity in 2023 and 3 TWh in 2030.
Earlier this month, TSLA said it delivered a record 139,300 vehicles during its third quarter, rising nearly 54% compared to the preceding quarter. In the second quarter ended June 2020, TSLA generated $6.04 billion in revenues. The positive impact of higher vehicle deliveries, higher regulatory credit revenue and higher energy generation and storage revenue did not fail to impress the market. Moreover, energy storage deployed increased 61% quarter-over-quarter to 419 MWh during the second quarter.
EPS for the last reported quarter came in at $0.5, growing 525% quarter-over-quarter. After the huge success of the Model 3 and Model Y SUV car, TSLA may soon announce its CyberTruck and Model S Plaid which could lead to further upside for the stock. TSLA’s third-quarter earnings will be posted after market close on October 21st and the street expects EPS to rise 51.4% compared to the year-ago value.
The stock gained nearly 415% year-to-date to close yesterday’s session at $430.83. Strong product demand from China and its battery unique development are primarily driving the stock higher. The stock is up more than 205% in the last six months.
How does TSLA stack up for the POWR Ratings?
A for Trade Grade
B for Buy & Hold Grade
B for Industry Rank
B for Overall POWR Rating
The stock is also ranked #4 out of 29 stocks in the Auto & Vehicle Manufacturers industry.
Albemarle Corporation (ALB)
ALB is a global engineered specialty chemicals company that develops, manufactures, and markets technologically advanced and high value-added products worldwide. ALB is the world’s largest lithium producer, accounting for 21% of global production. The company operates in three segments – Lithium, Bromine Specialties, and Catalysts. The Charlotte-based company has battery-grade lithium-producing plants in Europe, Australia, China, Chile and the United States.
ALB has recently announced that it has been selected by the United States Department of Energy (DOE) as a critical partner for two lithium research projects over three years through a Battery Manufacturing Lab Call. ALB will work in conjunction with two DOE labs on the company’s approved projects. The company has a sustainable stream of cash flows and it was included in the S&P 500 Dividend Aristocrats Index in the beginning of the year.
ALB will release its third quarter ended September 2020 earnings after the market closes on November 4th. The company reported a top-line of $764 million for its second quarter ended June 2020, which is a 14% decline year-over-year. Lithium contributed 37% to the total revenues. The segment generated $284 million, weakening $41 million year-over-year, primarily due to lower market and contract pricing. The company is operating with a gross margin of 31%.
EPS for the last reported quarter came in $0.8, declining 45% year-over-year. However, ALB’s plants continued to operate without materially being impacted from the pandemic by growing primarily its Lithium business and cost-cutting actions. For the rest of the year, the company expects Lithium to be in much demand and the firm’s manufacturing to grow by 15 to 20 thousand metric tons, which is expected to raise its EBITDA by at least 17%. The market expects EPS to grow 15% annually for the next five years.
ALB closed yesterday’s trading session at $92.57, gaining more than 28% year-to-date. The stock has gained nearly 54% in the past six months and is trading just 8.3% below its 52-week high of $101.00.
It’s no surprise that ALB is rated a “Buy” in our POWR Ratings system. It has a grade of “A” in Trade Grade, and a “B” in Buy & Hold Grade, Peer Grade, and Industry Rank. In the 69-stock Chemicals Industry, ALB is ranked #11.
Livent Corporation (LTHM)
In October 2018, FMC Corporation (FMC), a specialty chemical maker, spun off its lithium portfolio to create a pure play company, LTHM. The goal of the spinoff was to create a separate entity focused solely on the lithium market. LTHM produces and supplies battery grade lithium, butyl lithium for polymer manufacturing as well as lithium compounds for chemical synthesis. It operates manufacturing sites in the United States, England, India, China and Argentina
LTHM issued $225 million worth of green convertible senior notes in June this year in a private offering to qualified institutional buyers to improve its liquidity. The company was one of the first US companies to tap into this green financing option and aims to use these funds for refinancing its existing green projects.
LTHM will release its third quarter ended September 2020 earnings after the market closes on November 5th, 2020. LTHM’s revenues in the second quarter ended June 2020 declined 43% year-over-year to $64.9 million as the company witnessed serious disruption through mining restrictions due to the pandemic, leading to a slowdown in its supply chain. The company reported a net loss of $0.2 million, or breakeven on a per diluted share basis.
However, the stock witnessed gains recently after Raymond James analyst Pavel Molchanov reported that growth in battery EVs and other industrial uses will lead to significant jump in revenue and earnings for LTHM in 2021. Molchanov believes that once EV sales and other markets ramp back up to full production, LTHM could witness revenue grow by over 30%, and adjusted EBITDA could double. The street expects next year EPS to rise 243% compared to the current year value.
The stock gained 21.4% year-to-date to close yesterday’s session at $10.38. LTHM is well positioned to navigate short-term weakness and is prepared to react to a return of more normalized demand growth. The stock is up more than 92% in the last six months and is presently trading 17.2% below its 52-week high of $12.53.
LTHM is rated a “Buy” by POWR Ratings. It has an “A” for Trade Grade with a “B” for Peer Grade and Industry Rank. Among Industrial – Metals, it’s ranked #15 out of 33 stocks.
Lithium Americas Corp. (LAC)
LAC is a Canada-based resource company that engages in acquisition, exploration, and development of mineral properties. The company explores lithium deposits. It primarily holds interests in the Cauchari-Olaroz Project located in Jujuy province of Argentina; and the Lithium Nevada Project covering approximately 15,233 hectares of area located in northwestern Nevada.
LAC has recently completed the joint venture transaction of Minera Exar S.A. with Ganfeng Lithium Company Limited. Minera Exar owns 100% of the Caucharí-Olaroz lithium project currently under development in Jujuy, Argentina. The transaction with Ganfeng Lithium will strengthen LAC’s long-term partnership in Argentina to bring Caucharí-Olaroz into production.
LAC has not started to begin its commercial production yet. Its Caucharí-Olaroz Lithium Project was 47% completed at the end of the second quarter, with $427 million or 75% of the planned capital expenditures used. The company has also made significant progress with respect to the Thacker Pass lithium project in Nevada. Over 15,000 kg of high-quality lithium sulphate has been produced at the process testing facility.
The company reported a negative EPS of $0.07 for the quarter, significantly improving from the quarter-ago loss of $0.16 per share. There were rumors regarding the possibility of LAC being acquired by TSLA, but the company abandoned the plan recently.
The stock closed yesterday’s trading session at $12.82, gaining 304.4% year-to-date. The stock is trading 24.5% below its 52-week high of $16.97, and is up more than 135% in the past three months.
LAC’ strong momentum is reflected in its POWR Ratings, it has a “Buy” rating with an “B” in Trade Grade and Peer Grade. Within the Miners – Diversified industry, it’s ranked #1 out of 17 stocks.
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TSLA shares were trading at $426.73 per share on Tuesday afternoon, down $4.10 (-0.95%). Year-to-date, TSLA has gained 410.04%, versus a 9.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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