Investing Ideas: Car-related Stocks for February

Photo by Pictures of Money

It might not be too much of a stretch to suggest that retail investing is currently at an all-time high. 2020 saw a significant increase in retail investing, but thanks to the Wall Street Bets and GameStop debacle of January, everyone’s talking about the stock market­––and eager to jump in. The rise of investing apps and online platforms such as Interactive Brokers, Robinhood, Saxo Markets, DBS Vickers, and PhillipCapital have made trading incredibly accessible to the average person on the street. There’s never been a better time to start if you’ve ever been curious about investing in stocks.

Last month, we highlighted a few companies developing electric vehicles (EVs) in our post about investing in car stocks. However, stocks don’t typically move in isolation; a piece of news for a particular company can affect stock prices for other players in the sector. An example would be Velodyne’s (VLDR) soaring on news that Apple’s developing a self-driving car, since lidar sensors are key to self-driving technology.

So, if you’re looking to invest in the auto industry, you might consider looking beyond car manufacturers and into related ‘sympathy plays’, such as battery makers, EV charging, tyre makers, metal mining, or even SPACs. You might have seen that the EV sector is shaping up to be a pretty hot sector under the Biden administration, thanks to its focus on green energy going forward. Battery makers in particular have been receiving plenty of attention of late in the automotive space. EVs, of course, run on rechargeable batteries.

In this post, we’ll talk about a few battery makers you might want to put on your watchlist for the next few months. Just remember: it’s a pretty volatile market out there, and many of the newer stocks like QuantumScape (QS) have soared and plunged based solely on hype and rumour. Approach with caution and set your stop losses accordingly. Also, we’re not financial advisors, so nothing here should be taken as concrete investing advice. It’s your money at the end of the day, so do your own due diligence and manage your own risk!

Ensoniq SQ-80 inside/open by deepsonic

Panasonic (OTC:PCRFY)

Who hasn’t heard of this Japanese multinational electronics company? From LED lights to laundry machines, Panasonic has its fingers in many pies, but what many outside the auto space don’t know is that they supply lithium-ion battery cells to Tesla, and have a standing agreement to continue this until at least 2022. They’re also looking to develop cobalt-free batteries, which will not only help Tesla lower its EV prices, it’s also a wise ethical decision, given that cobalt is primarily mined using child labour in the Democratic Republic of the Congo. Outside of Tesla, Panasonic and Toyota are collaborating on developing prismatic batteries for the electric vehicles of the future, which augurs well for its business as well as the industry as a whole.

This Japanese giant won’t make you rich overnight, but with a dividend of 1.65%, an excellent price-sales ratio of 0.5, a diversified business, and favourable growth prospects for the foreseeable future, this is a good one to have in the portfolio if you like stable and reliable stocks. Plus, a boost in Tesla’s stock won’t do any harm to Panasonic stock either.

CBAK Energy Technology (CBAT)

Thanks to the EV space heating up in 2020––and the rise of Chinese EV manufacturers like Nio and XPeng—battery maker stocks have been seeing a fair bit of price action in the last few months. One stock that’s done very well out of last year is CBAT Energy Technology (CBAT). Founded in 2001, CBAT Energy Technology is a leading Chinese company focused on researching, developing, manufacturing, and supplying a wide variety of lithium-ion rechargeable batteries for use in a number of applications like mobile phones, laptops, digital cameras, and EVs.

CBAK hasn’t turned a profit for more than five years now, but the last year has seen far better performance based on opportunities and potential demand for CBAK’s technologies in the EV space. For example, its stock price in January jumped 45.5% on news that NIO was looking to launch new EV models using lithium iron phosphate batteries.

Overall, its stock price rose from $0.88 in September to highs of $11.30 in November, and is currently trading around the $7.00–8.00 range––that’s over 1000% gains to date for early investors. CBAK has done well for itself, but it does remain to be seen whether they can maintain their stock performance in an increasingly competitive EV space over the next decade. Keep on your watchlist before diving in.

Could all our buses be electric one day? Photo by Singapore Buses

Microvast (THCB)

2020 was the year of companies going public via SPACs, and this trend looks set to continue. One battery SPAC we’ve had our eyes on for a while is Tuscan Holdings (THCB), which has confirmed a merger with Chinese battery maker Microvast.

There’s a lot to like about Microvast: though it’s incorporated in Houston, it’s had a very decent business track record since its founding in 2006. They have around 2,500 employees, and their 2020 revenues were approximately $101 million. By 2016, their batteries had been used in over 10,000 buses, and their first non-flammable lithium-ion battery propelled it into “billion-dollar unicorn” status in China. You can apparently charge an electric bus in under 10 minutes with one of their batteries, and they supplied the buses at the 2018 Winter Olympics with Microvast batteries. Oshkosh (OSK)––yes, that one––also has $25 million in the private-equity part of the Tuscan Holdings deal.

But what of their business ventures in America? They seem to be targeting commercial and specialty public transportation vehicles like electric buses, which is an intriguing niche. Public transit is one of the prime markets for electrification, and Microvast batteries could play a significant role. In fact, Microvast already has a contract from the U.S. Advanced Battery Consortium to develop low-cost, fast-charging batteries. While green energy is expected to thrive under the Biden administration, don’t expect immediate gains on its stock price in the short-term––if the pandemic drags on, demand for buses isn’t going to bounce back just yet. It might be one to buy on dips and hold for the mid-term, though.

Aqua Metals (AQMS)

EVs are generally touted as being much more environmentally friendly, but one of their most problematic aspects are the batteries. At present, most are discarded rather than recycled, which means a ton of toxic waste, environmental costs, and many potential battery explosions. (Thermal reactions in the batteries may cause burning or exploding… which isn’t fun at all in the landfills.) Also, lead poisoning isn’t great for anybody. But where there’s inefficiency, there’s opportunity.

Enter Aqua Metals, a small-cap company focused on recycling lead through their proprietary, patent-pending process AquaRefining. This process delivers a higher quality product at a better yield, and also eliminates the waste associated with conventional smelter-based lead acid battery recycling––perfect for helping to solve the impending rechargeable EV battery disposal problem.

There’s much to pique investors here. Aqua Metals paid off its debts in 2020 and switched to an asset-light model, which will help keep their business healthy and flexible going forward. Their stock price saw a surge in late 2020, but even then, it’s still relatively affordable between $5–6 per share. Its (current) market cap of around $400M also means there’s still some possible upside going forward, particularly in current market conditions.

In a more environmentally-conscious era, Aqua Metals may just be the start of a new wave of battery-recycling companies. Well­––we can dream…

Disclosure: The writer of this article does not hold positions in any of the stocks mentioned above.The views in this article are that of the writer’s, and do not represent ST Auto as a whole. ST Auto has no business relationships with any of the companies whose stock is mentioned in this article. As a car dealership, ST Auto does not provide investment advice. Always do your own research and make your own investment decisions. This article is meant for educational and informational purposes only.

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