The S&P/TSX Battery Metals Index has been one of the top sector reporters on the S&P/TSX Composite Index over the past year. This should not come as a surprise considering the leaps that both the electric vehicle (EV) and battery metals spaces have taken in the first half of the 2020s. Today, I want to determine whether it is better to buy battery stocks or EV stocks right now. Let’s jump in.
Why battery stocks are the better bet right now
Allied Market Research recently valued the global lithium-ion battery market at US$46.2 billion in 2022. The same report estimated that this market would reach US$189 billion by 2032. That would represent a compound annual growth rate (CAGR) of 15% from 2023 through to the end of the forecast period.
Lithium Americas (TSX:LAC) is a Vancouver-based resource company that has established locations in the United States and Argentina. It recently hit a major milestone, posting its first lithium production at its Argentina location. Unfortunately, the lithium battery stock has succumbed to broader volatility. Shares of Lithium Americas hit a 52-week low of $21.80 on August 18, 2023. The stock has threatened this low in September.
This company released its second-quarter (Q2) fiscal 2023 earnings on August 9. As I’d stated, Lithium Americas announced that it achieved its first lithium production at the Cauchari-Olaroz location in Argentina. Meanwhile, Lithium Americas also projected that its Thacker Pass location in the United States was slated to achieve lithium production by the second half of 2026.
Investors should be attracted to this stock that is on track for terrific earnings growth over the course of this decade.
Here’s why EV stocks are where you should turn in the fall of 2023
The success of the EV space is intimately connected with the demand and subsequent production boom we have seen for lithium. EVs were still something of a novelty among automobile consumers through the 2010s, even with the commercial success of Tesla. However, this sector has really started to pick up significant steam in the first half of the 2020s.
According to a recent report on the sector from the International Energy Agency (IEA), EVs made up 4% of the total automobile market in 2020. That has ballooned to 14% in 2022 and is expected to reach 18% by the end of 2023. Investors cannot ignore the amazing growth trajectory we are witnessing in this market.
Lion Electric (TSX:LEV) is a Montreal-based company that designs, develops, manufactures, and distributes purpose-built all-electric medium and heavy-duty urban vehicles in Canada and the United States. While the EV market has picked up steam, Lion Electric has failed to build notable momentum through 2023. Moreover, the EV stock has nearly halved from the 52-week high of $4.94 it rose to in November 2022.
In Q2 2023, Lion Electric achieved record revenue in the quarter of $58.0 million. EBITDA stands for earnings before interest, taxes, depreciation, and amortization, and it aims to give a clearer picture of a company’s profitability. This company posted an adjusted EBITDA loss of $9.7 million, which was improved from an adjusted EBITDA loss of $14.4 million in Q2 2022.
Lion Electric is geared up for strong revenue growth, as it continues to take advantage of the broader momentum in its sector. The company also possesses a fantastic balance sheet at the time of this writing.
Verdict
I love the potential of battery stocks and EV stocks in the 2020s. However, I’m picking the incredible growth potential of Lithium Americas stock right now, as it still offers a solid price.
