Although electric vehicle sales declined by 25% in the first quarter of 2020, the rollout of new EVs and plug-in hybrid models by companies like Tesla (TSLA) and Ford (F), in 2021, should accelerate the growth of the electric vehicle industry. There should be a surge in EV industry sales in 2021 as countries around the world push new programs to encourage consumers to buy battery-powered vehicles.
Cairn Energy Research Advisors estimate global sales of EVs to jump 36% and top 3 million vehicles in 2021. With Joe Biden’s plan to achieve a 100% clean energy economy and net-zero emissions no later than 2050, the battery industry is expected to witness a higher demand from the EV industry.
Although the outbreak of the coronavirus pandemic lowered the purchase of EVs, its demand is expected to rise again with the introduction of improved and cost-effective lithium-ion batteries, more readily available charging infrastructure, and price parity with internal combustion engine (ICE) vehicles. Hence, investing in battery stocks like Tesla, Inc. (TSLA), Sociedad Química y Minera S.A. (SQM) and Energizer Holdings, Inc. (ENR) should allow investors to benefit from the budding EV industry.
Tesla, Inc. (TSLA)
TSLA certainly needs no introduction. Founded in 2003, the company operates internationally, through two segments – Automotive and Energy Generation, and Storage. On November 16th, S&P DJI announced that TSLA will be added to the S&P 500, which will be effective from December 21st. Following the news, TSLA’s stock surged 13.2% after hours. This addition will significantly broaden the company’s investor base.
CleanSpark software and services company recently collaborated with TSLA to use its battery energy system for a Microgrid project in South America. Moreover, TSLA recently started exporting Giga Shanghai’s Model 3 vehicle to Europe, thereby increasing its operational and delivery capacity.
TSLA’s revenue increased 45.3% sequentially to $8.77 billion in the third quarter ended September 2020. Non-GAAP net income increased 155.5% year-over-year to $874 million, while EPS rose 105.4% from the year-ago value to $0.76. Gross margin rose 253 basis points sequentially to 23.5% in the third quarter.
The consensus EPS estimate of $0.87 for the current quarter ending December 2020 indicates a 112.2% improvement year-over-year. Moreover, TSLA beat the street EPS estimates in three out of the trailing four quarters, which is impressive. The consensus revenue estimate of $9.99 billion for the current quarter indicates a 35.3% growth from the same period last year. The stock has gained 387.8% year-to-date.
TSLA has an “A” in Industry Rank and a “B” in Trade Grade in our POWR Ratings system. In the 33-stock Auto & Vehicle Manufacturers industry, it is ranked #17.
Sociedad Química y Minera S.A. (SQM)
SQM produces and distributes specialty plant nutrients, iodine, lithium, potassium chloride, and other industrial chemical products and services that are used in polarizing films for LCD and LED, antiseptics, biocides, and disinfectants. It sells its products through distributors and representative offices in Chile, North, Central, and South America, Europe, and Asia.
SQM has recently launched a $1 million online platform providing data on brine extraction, industrial water wells, and meteorological information about its operations in the Atacama. This investment is a part of its efforts to strengthen the reliability of lithium production. Earlier this year, the company had also signed agreements with different indigenous communities of Atacama to expand its operations further. With lithium being a key material required in the production of batteries that power electric vehicles, SQM is poised to grow substantially in tandem with the global EV industry.
SQM’s industrial chemicals revenue increased 324.8% year-over-year to $59.10 million in the second quarter ended June 2020. Net income increased 12.9% sequentially to $50.80 million, while EPS rose 11.8% sequentially to $0.19. Gross profit grew 18.7% sequentially to $127.80 million over this period.
The consensus EPS estimate of $1.31 for the next year indicates a 45.6% improvement year-over-year. The consensus revenue estimate of $2.20 billion for the next year indicates a 20% growth from the same period last year. The stock has gained 70.8% year-to-date.
SQM’s promising outlook is reflected in its POWR Ratings. It is rated “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. Among the 69 stocks in the Chemicals industry, it’s ranked #7.
Energizer Holdings, Inc. (ENR)
ENR manufactures and distributes household batteries, specialty batteries, and lighting products worldwide. The company provides lithium, zinc-air, and silver oxide batteries under the Energizer and Eveready brands. ENR also manufactures lithium-ion batteries, which are of utmost importance for electric vehicles and the car chargers market.
ENR has recently announced that it raised $800 million through senior notes offering. It plans to utilize a part of its net proceeds to redeem outstanding senior notes, due 2026. This should allow the company to reduce its interest burden significantly. The remaining funds are expected to finance the expansion plans to increase the company’s battery production, at par with the EV industry growth.
ENR’s net sales increased 6.1% year-over-year to $763 million in the fiscal fourth quarter ended September 2020. Net cash flow from operating activities grew 151.8% from the year-ago value to $376.40 million.
The consensus EPS estimate of $0.48 for the next quarter ending March 2021 indicates a 29.7% improvement year-over-year. The consensus revenue estimate of $603.06 million for the next quarter indicates a 2.7% growth from the same period last year. The stock has gained 4% over the past six months.
Under our POWR Ratings, ENR has an “A” in Industry Rank and a “B” in Trade Grade. The stock is ranked #30 out of 69 stocks in the Home Improvement & Goods industry.
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TSLA shares were trading at $444.95 per share on Tuesday afternoon, up $36.86 (+9.03%). Year-to-date, TSLA has gained 431.82%, versus a 13.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More…
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