Better Buy in November 2023: Battery Stocks or EV Stocks?

EV stocks are hot right now, but could battery stocks like Lithium Americas Corp (TSX:LAC) be like “selling shovels in a gold mine?”

| More on:
A lake in the shape of a solar, wind and energy storage system in the middle of a lush forest as a metaphor for the concept of clean and organic renewable energy.

Source: Getty Images

If you want to invest in electric cars, there are two ways to get in on the action:

  1. Invest in electric car components.
  2. Invest in companies that make electric cars.

These are the two choices available to you as an investor interested in electric vehicles (EVs). If you’re like most investors, you’ve probably had the idea to invest in EV manufacturers. That’s the obvious play, but it may not be the best one. Because everybody knows about EV stocks, such stocks trade at steep valuations. EV component stocks, such as battery stocks, are often much cheaper. In this article, I will explore the case for investing in battery stocks, and contrast it with the case for investing directly in EVs. Hopefully, this contrast will help you decide which category of asset is better suited to your portfolio.

The case for battery stocks

The case for investing in battery stocks over EV stocks rests on the fact that battery stocks are typically cheaper than EV stocks, because they aren’t well known. When I say “battery stock” here I’m really referring to Lithium miners, as EV battery manufacturing is mostly done by the big EV manufacturers. Lithium miners extract and sell the lithium that is used in EV batteries. There is already a big and lucrative market for lithium for use in smartphones and laptops. EVs, which use far more lithium than those devices, will take the lithium market to the next level.

As an example of EV battery stocks, consider Lithium Americas Corp (TSX:LAC). It’s a Canadian lithium miner that explores for lithium, primarily in the United States. It owns mining rights in Thacker Pass, a large, lithium rich area in Nevada. The company is a young one, and it isn’t generating revenue yet, so some valuation methods aren’t available for it. However, it does score pretty well going by the price/book ratio. This ratio for LAC is just 4.6, which is comparatively low for companies involved in the battery industry. I wouldn’t recommend running out and buying LAC just yet, but once it starts generating revenue it may be a company worth investing in.

The case for EV stocks

The case for investing in EV stocks instead of battery stocks rests on the fact that they are already profitable and growing. Many of the lithium mining stocks that investors are excited about aren’t even generating revenue yet. As such, they’re very speculative. EV stocks, in contrast, are in many cases profitable and growing.

Let’s take a look at Tesla Inc (NASDAQ:TSLA), for example. It’s a U.S. EV manufacturer that does over $90 billion in annual sales. In the last 12 months, it did:

  • $95 billion in revenue, up 28%.
  • $19 billion in gross profit.
  • $10.7 billion in operating income, down 13.5%.
  • $10.7 billion in net income, down 4.5%.

It wasn’t a great showing. However, it was good enough to show that Tesla is a going concern that can give wealth to its shareholders. That may be an advantage over small cap battery stocks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Tesla. The Motley Fool has a disclosure policy.

More on Tech Stocks

Dots over the earth connecting the world
Tech Stocks

Hot Takeaway: Concentration in 1 Stock Can Be Just Fine

Concentration in one stock can be alright under the right circumstances, and far better than buying a bunch of poor-performing…

Read more »

A worker uses a double monitor computer screen in an office.
Tech Stocks

Forget TD Stock: 2 Tech Stocks to Buy Instead

As bank stocks continue disappointing investors in 2024, you can consider adding these two top Canadian tech stocks to your…

Read more »

financial freedom sign
Tech Stocks

1 TSX Tech Stock That Has Created Millionaires and Will Continue to Make More

Constellation Software is a TSX stock tech that has delivered game-changing returns to shareholders since its IPO in 2006.

Read more »

Money growing in soil , Business success concept.
Tech Stocks

Payfare Can Potentially Provide Explosive Growth

Payfare is a global financial technology company that powers digital banking, instant payment, and loyalty reward solutions for the gig…

Read more »

online shopping
Tech Stocks

1 Hidden Catalyst That Could Ignite Shopify Stock

Here's why Shopify (TSX:SHOP) ought to remain a top growth stock investors continue to focus on for the long haul.

Read more »

Man considering whether to sell or buy
Tech Stocks

WELL Stock: Buy, Sell, or Hold?

WELL stock has a lot of upside as the company is likely to continue to grow, posting positive earnings in…

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Tech Stocks

Finally Going Private: What Should Nuvei Investors Do Now?

Understanding the reasons and factors behind a public company going private can help investors make an educated decision.

Read more »

woman data analyze
Tech Stocks

1 Stock I’d Drop From the “Magnificent 7” and 1 I’d Add

Tesla (NASDAQ:TSLA) stock is part of the Magnificent Seven, but Shopify (TSX:SHOP) is growing faster.

Read more »