3 Mid-Cap Global Battery Manufacturer Stocks
Investing in batteries is an easily understood thesis. Electric cars use batteries, and today you see loads of them driving around. Tesla doesn’t just use their own batteries, they also buy them from other manufacturers such as Panasonic and LG Chem. Then, there are all the drones you see flying around, the smartphones in everyone’s pockets, and all the gadgetry nowadays that relies on the humble lithium-ion battery. Battery manufacturers stand to benefit from the growing demand for lithium batteries, so these are companies we may want to invest in.
We’ve talked before about how Investing in Lithium Hasn’t Panned Out. Yet. Trying to invest in the raw material itself – lithium – is tricky. Instead, perhaps we can invest in battery manufacturers themselves. Today, we want to look at three global companies that manufacture batteries as their primary mandate.
3 Battery Manufacturers
The Global X Lithium ETF (LIT) contains a mix of names that have something to do with lithium or lithium batteries. In there, you’ll find three mid-cap battery manufacturers from around the globe.
|Ticker||Country||Market Cap||2019 Revenues (billions USD)|
|Simplo Technology Co||6121.TWO||Taiwan||2.46||2.6|
Let’s take a look at what each actually does.
About Varta Ag Stock
You don’t have to be a traditional startup backed by venture capitalists in order to grow a business. Zee Germans have shown us that time and time again. Look no further than this German battery manufacturer that’s over a century old. “VARTA AG can look back on the most successful fiscal year in its 135-year business history,” said the company – and they weren’t even talking about the below revenue growth numbers.
If you think the above revenue growth trajectory is impressive, just wait until you hear about 2020. Revenues were up +140% to just over one billion USD, about half of which could be attributed to organic growth. Around 58% of 2020 revenues came from their lithium-ion microbatteries segment, while the rest came from “household batteries.” We can further divide lithium-ion microbatteries into additional segments as follows (our highlights in yellow):
It’s a shame we’re not given revenue breakdowns for these sub-segments, but they do say that lithium-ion batteries are leading the growth of “Microbatteries & Solutions.” This might have something to do with everyone you see using overpriced AirPods. Check out this Bloomberg headline:
Let’s assume the analysts are correct. That means Apple could be responsible for more than 50% of Varta’s revenues. If Apple ever pulls that relationship, Varta is screwed. We’ve seen too many tech companies decimated in a single press release to take such a chance. That said, we do like the company’s revenue growth trajectory and the diversification you’ll get by investing in a German stock.
About EnerSys Stock
Similar to Varta AG, EnerSys and its predecessor companies have been manufacturers of industrial batteries for over 125 years. What is now known as EnerSys was formed in 2000 and has since expanded organically and through more than 30 acquisitions to become “the global leader in stored energy solutions for industrial applications.” Approximately 40% of their sales and expenses are transacted in foreign currencies which provides some nice diversification effects which can be seen in their smooth and consistently growing revenue streams.
EnerSys products are sold globally to over 10,000 customers in more than 100 countries (no single customer accounts for more than 10% of their revenues), and can be broken down into three different segments as seen below along with their contributions to 2020 revenues:
- Energy Systems (45%) – uninterruptible power systems (UPS) and highly integrated power solutions and services to broadband, telecom, renewable and industrial customers.
- Motive Power (40%) – power for electric industrial forklifts
- Specialty (15%) – premium starting, lighting and ignition applications in transportation, energy solutions for satellites, military vehicles, as well as medical and security systems.
The batteries produced by EnerSys aren’t just lithium ion, but also lead acid. Raw material costs account for over half of their cost of goods sold, with lead being the most significant (millions in lead forward contracts sit on their books). They have the largest market share in the Americas and European industrial battery market, but just a fraction of representation in Asia.
The company expects to benefit from growth in 5G installations and data centers. They also plan to continue growth through acquisition. While they appear to be exposed heavily to the price of commodities, they seem to be managing that quite well as evidenced by their consistent yearly profitability.
About Simplo Technology Stock
Taiwanese aren’t just good at math, they’re also good at just about everything else including the world-class food found in their night markets. Founded in 1992, Taiwan’s own Simplo Technology says they’re the number one “battery module manufacturing supplier” delivering over 200 million battery packs per year. That’s a vague claim, but it’s all the information we’re given on the “About Us” page.
So, we can move on to the 2020 Shareholders Meeting Handbook which talks about how they’re “an industry leader in terms of application in notebook PCs, smartphones and other IT products,” and they’re selling batteries to “the top five notebook PC brands.” In 2020, they plan to “invest more resources in acquiring new non-IT customers and developing new product areas.” They talk about focusing on the sales of lithium battery packs for high-power electric vehicles and electric motorcycles along with batteries for industrial robots.
The biggest problem you’ll find when it comes to investing in Asian stocks (and yes, we’re using the term “Asian” appropriately here), is that nearly all of them solely listed abroad have no incentive to “Westernize” their financial filings. Oftentimes, they’re not going to be very friendly to read, or even in English for that matter. While Simplo Technology does a decent job in conveying information to investors – they report revenues on a monthly basis – they’re too difficult to follow for your average retail investor who doesn’t read Mandarin.
ARK Invest was recently talking about how they pivoted to America for greater growth, which may explain why they’ve avoided a number of foreign stocks like CELLINK and TeamViewer. They know full well what’s outside their borders, they’re just choosing to be overweight America. Domestic bias concerns aside, the problem is that ARK is of such a size that all their favorite picks now appear to move in unison. This means tech investors can actually get a diversification effect by holding foreign stocks like TeamViewer and CELLINK.
The same holds true for the lithium-ion battery stocks we’ve talked about today. If American investors send the price of domestic “lithium stocks” through the roof, both these foreign stocks will probably enjoy less volatility.
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