Back in 2021, when growth stocks were in a major bull market, electric vehicle (EV) companies were among the hottest picks. With a global focus on decarbonization and with government support, there were reasons to be bullish on EV stocks. However, factors of macroeconomic headwinds, geopolitical tensions, trade wars and intense competition have dampened industry sentiments.
In my view, most of these factors are temporary headwinds. Therefore, it’s a good time to consider exposure to undervalued EV stocks. The focus of this column is on EV battery stocks to buy that can deliver multibagger returns in the next five years. For now, it’s just a matter of buying and holding these undervalued stocks with patience.
From an industry perspective, EV adoption in most countries is still at an early stage. Last year, almost 14 million new EVs were registered globally. By 2030, it’s expected that 42% to 58% of cars sold globally will be EVs. That puts into perspective the potential demand for EV batteries in the coming years.
Therefore, let’s discuss three EV battery stocks to buy for multibagger returns.
Panasonic Holdings (PCRFF)
10 Lithium Stocks to Buy Despite the Market's Irrationality
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Panasonic Holdings (OTCMKTS:PCRFF) stock is possibly among the most undervalued battery stocks to buy. After declining almost 30% in the last 12 months, PCRFF stock trades at a forward P/E of 9. Further, the battery stock offers a dividend yield of 2.76%.
It’s worth noting that Panasonic had chalked out ambitious EV battery capacity expansion plans. From a battery capacity of 50 GWh in the last financial year, Panasonic plans to increase capacity to 200 GWh by 2031. Quadrupling of capacity will imply healthy revenue growth coupled with EBITDA margin expansion.
However, with the recent slowdown, it’s likely that expansion plans will be deferred. I don’t see that as a concern if the long-term outlook is positive. It’s worth adding here that Panasonic has been focused on innovation that translates into improved EV batteries.
As an example, the company is targeting a 25% increase in battery density by the end of the decade. A focus on innovation will likely ensure Panasonic maintains or increases its market share.
Solid Power (SLDP)
Smartphone with logo of American battery company Solid Power Inc. on screen in front of business website. Focus on center-left of phone display.
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Among EV battery companies focused on solid-state batteries, Solid Power (NASDAQ:SLDP) is an attractive bet. After an extended period of correction, SLDP stock has trended higher by 12% year-to-date. That has been backed by positive business developments and I expect the upside momentum to sustain.
One reason to like Solid Power is the backing of strong automotive partners. In December 2022, the company licensed its cell design and technology to BMW (OTCMKTS:BMWYY) for parallel research and development. This will likely help with the potential acceleration of the commercialization timeline.
Earlier this year, the company strengthened its ties with SK On. It provides Solid Power with an entry into the Korean market. The partnership will also support technology advancement besides helping Solid Power make inroads in a new market.
Later this year, Solid Power will be delivering A-2 cells to automotive partners for validation testing. The A-2 cells “incorporates planned improvements and addresses known challenges” from the company’s A-2 cells. Positive validation testing results can be a major catalyst for stock upside.
QuantumScape (QS)
QuantumScape logo on thumbnail for Luke Lango's Hypergrowth Investing podcast.
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QuantumScape (NYSE:QS) is another company working on solid-state lithium metal batteries for electric vehicles. QS stock has remained depressed with a downside of 29% in the last 12 months. However, valuations look attractive considering the company’s business progress.
The first point to note about QuantumScape is the research and development effort for 13 years. During this period, the battery company has accumulated around 300 patents or patent applications. Therefore, QS has an innovation edge.
Further, the solid-state battery maker has commercial agreements with six automotive OEMs. That underscores the company’s capability and the potential to commercialize solid-state batteries. I must add here that Volkswagen (OTCMKTS:VWAGY) is a strategic investor in the company.
In terms of product development, the progress has been smooth. In March, the company shipped Alpha-2 sample cells to automotive partners for validation testing. For the current year, QuantumScape is also targeting low-volume QSE-5 prototype production. With all these positive developments, it’s just a matter of time before QS stock skyrockets.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
