As forward thinking as Warren Buffett is, Berkshire Hathaway (NYSE:BRK.B) — the multinational conglomerate holding company Buffett spearheads — has never invested in Tesla (NASDAQ:TSLA). That has led some folks to question whether he likes Tesla or even electric vehicles. But look beyond the noise, and you’ll find that the Oracle is quite bullish on EV battery stocks.
First, to clarify Buffett’s position on Tesla, in 2019, he stated during an interview with Yahoo Finance regarding Tesla CEO Elon Musk that “I think he has room for improvement, and he would say the same thing.” Furthermore, Buffett mentioned that Buffett would benefit from a little more discretion on social media. Nevertheless, Buffett called Musk “a remarkable guy.” Perhaps the only thing more remarkable is the possible upside trajectory of battery stocks.
Indeed, as InsideHook detailed, Buffett has been betting big on EV battery stocks since 2008. Coincidentally, this was the first year that Tesla released its Roadster, proving to onlookers that EVs can be environmentally friendly and desirable. While Tesla has more than established itself as the dominant leader in the EV space, Buffett’s investments in batteries hasn’t exactly been a slouch.
One of the reasons why regular investors may want to follow in Buffett’s footsteps — as opposed to taking Musk’s constant tweets as gospel — is that battery stocks represent a play on infrastructure. Look, whether you like Tesla or not, the reality is that no one knows for sure whether a powerful brand today will stand the test of time for tomorrow.
Don’t believe me? Consumers once regarded Packard as one of the top luxury car brands in the U.S. and it could have succeeded if it made appropriate business decisions. That didn’t turn out to be the case because individual brands suffer severely from competition. On the other hand, infrastructure plays like battery stocks will likely be relevant for a long time.
- BYD (OTCMKTS:BYDDF)
- Panasonic (OTCMKTS:PCRFY)
- Toyota (NYSE:TM)
- EnerSys (NYSE:ENS)
- Lithium Americas (NYSE:LAC)
- Energous (NASDAQ:WATT)
- QuantumScape (NYSE:QS)
As with any investment sector, you’ll want to exercise due diligence with EV battery stocks. Yes, we’re talking about Warren Buffett but it’s your money, not his. Therefore, consider this article to be a series of ideas to spark further research.
Battery Stocks: BYD (BYDDF)
If you want to know what all the fuss is about regarding Buffett’s call on battery stocks, look no further than BYD. An automotive firm headquartered in China, BYD seemingly covers every area of mobility, from cars, buses, trucks — even electric-powered bicycles and forklifts. While those are intriguing business models (particularly in the world’s second-biggest economy), Buffett is focused on the company’s rechargeable battery division. Bloomberg’s Brooke Sample explained it beautifully:
“The value of Berkshire Hathaway Inc.’s holdings in BYD Co. Ltd., one of China’s oldest makers of cars and automotive batteries, has skyrocketed this year: BYD’s share price is up almost 30%. Buffett has backed BYD for over a decade, holding around 22% in the Hong Kong-listed company, which now sits on a market capitalization of over HK$915.6 billion ($117.6 billion).”
Sample also stated that the market cap is bigger than what Nio (NYSE:NIO) has achieved — and that’s saying something because Nio has achieved plenty.
As for following Buffett’s lead, it’s hard to argue against it. In 2020, BYD generated revenue of nearly $24 billion, up over 31%. In the first quarter of 2021, BYD rang up $6.3 billion, up nearly 25% against the year-ago quarter.
Although Buffett’s Berkshire Hathaway may have never invested in Tesla, I’m sure the Oracle wouldn’t mind investors bulking up on shares of Panasonic. Once a giant in the consumer electronics space, the problem for Panasonic is that the 1980s and 1990s faded into the history books. And thus, a huge part of the company’s relevance also got sucked into the business version of a black hole.
However, not all is lost. Indeed, one might say that the prospects for Panasonic has never looked brighter. While no one’s lining up for its consumer electronics, they’re eager to get their hands on the company’s EV powerplant. As one of the top battery stocks in the market, Panasonic has long bolstered Tesla’s electrification ambitions.
Earlier this year, Nikkei Asia reported that the EV manufacturer will “continue buying batteries from longtime Japanese supplier Panasonic until at least 2022 despite the U.S. electric vehicle maker’s plans to produce its own cheaper alternative.”
Whatever happens to this partnership in the future, Panasonic has in many ways already won thanks to the power of the Tesla brand. Also, PCRFY trades at a relative discount to its prior highs, making it an intriguing choice among battery stocks.
Battery Stocks: Toyota (TM)
Staying in the same geographic area, fans of Warren Buffett may want to consider Japanese automotive behemoth Toyota. For one thing, Toyota announced in late 2019 that it would set up a joint venture with BYD with the aim of designing and developing battery EVs. With Berkshire Hathaway owning 25% of BYD, Toyota would seem likely to win the Oracle’s approval.
Beyond that, Toyota intrigues because of its research and development of solid-state batteries (SSBs). Unlike the traditional lithium-ion powerplants that EVs incorporate, SSBs feature incredibly high energy density. This translates to longer range and better performance for EVs, which makes TM stock an exciting proposition.
To be fair, no one has yet cracked the SSBS code. While the platform exists, it hasn’t been able to deliver the longevity that consumers demand from their vehicles. Furthermore, building an unattainably expensive SSB would be commercially pointless.
Still, whoever builds the first one will essentially have found the Holy Grail. Best of all, even if Toyota doesn’t quite get it right, the company is still a global leader in the automotive industry. Therefore, you almost can’t go wrong with TM for your portfolio of battery stocks.
Billed as the global leader in stored energy solutions, EnerSys offers its services across a wide range of industries, from communications networks to data centers to healthcare infrastructures to military and defense needs. Of course, what has really caught investors’ attention seeking viable battery stocks to buy is EnerSys’ solutions for the transportation sector.
The company made its name in the automotive market through its Odyssey brand of batteries for combustion-based vehicles. According to its website, “Even at very low temperatures, ODYSSEY Extreme Series batteries have the power to provide engine-cranking pulses in excess of 2250A for 5 seconds — double to triple that of equally sized conventional batteries. And they can handle 400 charge-discharge cycles to 80% depth of discharge.”
Given its acumen in this area, it’s no surprise that EnerSys entered a partnership with Blink Charging (NASDAQ:BLNK) to “develop high-power wireless and enhanced DC fast charging (DCFC) systems with integrated battery storage for the transportation market.”
Should EVs become the go-to platform in the future — and that’s the common belief — ENS would be one of the battery stocks to keep on your watch list.
Battery Stocks: Lithium Americas (LAC)
Technically a lithium-mining company as opposed to being one of the pure-play battery stocks, Lithium Americas nevertheless deserves serious consideration for the EV investor. As with many of the other companies on this list, Lithium Americas is an infrastructure play. You’re not here to gamble on which EV brand will dominate the market of tomorrow; rather, you’re in the biz to sell the hottest tickets in town.
In fact, calling lithium a hot ticket would be doing its demand profile injustice. As the New York Times detailed earlier this year, China is aggressively seeking to dominate the global EV market. Thanks to its prodigious production capabilities, it’s not an unreasonable goal. Of course, this initiative would require gobs of lithium, making it this century’s equivalent of oil.
As well, investor sentiment has keyed in on LAC stock. Over the trailing year, shares are up over 99%. And on a year-to-date basis, LAC has gained 32%, reflecting tremendous demand for the underlying asset.
Still, it pays for investors to be cautious. Between early September 2020 to the present, it seems LAC is charting a long-term bearish head-and-shoulders pattern. Therefore, if you’re going to play, do so very carefully.
For the last two battery stocks, I’m going to dive into the more speculative side of the fence, starting with Energous. For full disclosure, I was not a big fan of WATT stock. In fact, I was downright bearish, stating that Energous was at risk for a “reality check.”
As you know, the company specializes in at-contact or over-the-air wireless charging. Naturally, that brings up safety concerns. After all, mobile phones emit radiation and very limited evidence suggests there might be a risk for heavy cellphone users. Nevertheless, my argument was that even if Energous’ charging platform was safe, it wouldn’t be nearly as efficient as wired charging.
Making matters worse, WATT did get a reality check, shedding 86% since the date of publication. So, why bother mentioning Energous now?
First, the company’s WattUp charging technology for existing vehicles could help bring wireless convenience and safety to the roadways, which may offer a better demand profile than home wireless charging. Second, WATT has been posting a series of higher lows since December of last year, for any interested contrarians.
For the record, I’m personally still hesitant on this opportunity. Nevertheless, I don’t want my bias to deny you information about this wager.
Battery Stocks: QuantumScape (QS)
Finally, another company that I’ve generally been skeptical on is QuantumScape. Attracting significant attention from both retail investors and business bigwigs, QS stock could be a paradigm shifter if the underlying company succeeds in its quest to develop the world’s first commercial SSB for EVs.
As I’ve mentioned for Toyota, SSBs could change the entire landscape for EVs and most importantly, their mainstream adoption. By packing more energy into a smaller space, SSBs could not only allow EVs to drive longer distances on a single charge, they could also be cheaper to manufacture since they would use less materials.
The problem is that such fantastical notions — higher capacity, lower environmental footprint, cheaper cost — are incredibly difficult, perhaps even impossible to engineer. I’m not suggesting that it is impossible but the odds are certainly stacked against QuantumScape.
What makes QS risky is that if it falls short, then it doesn’t have anywhere else to since its pre-revenue posture is based on getting an SSB to market. On the other hand, if Toyota fails in its SSB endeavor, it can still do Toyota things.
Nevertheless, the appeal for QS stock is that after hemorrhaging in the market, if the company does come through, this could be a groundbreaking investment. If you like gambling with your battery stocks, this might be the name for you.
On the date of publication, Josh Enomoto did not have (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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.