Chances are when someone thinks of battery stocks, the name Tesla comes to mind. After all, it does have some impressive battery technology as part of its wider offer. The problem is that Tesla’s share price has skyrocketed nearly 640% over the last year. This is fantastic for existing shareholders, but the valuation today is very high.
Fortunately, there are other battery-linked stocks to choose from, and I’ve found two that I think will suit my portfolio’s passive income and growth needs.
A battery stock hidden underground
The first of the battery stocks is Glencore (LSE:GLEN), a multinational metal mining company.
Metals may sound like an odd and boring way to enter the battery market, but it is an essential piece of the puzzle. Today you’ll find lithium-ion batteries in almost all electronic devices from, phones to electric cars. But despite what the name suggests, lithium is not the main ingredient.
The primary metals needed to make a lithium-ion battery are nickel, cobalt, and aluminium. And the first two are in short supply.
As it turns out, Glencore is a world-leading producer of all three. And while Covid-19 did put a damper on performance in 2020, overall, the business’s financial health looks good to me.
Having said that, there are some substantial issues. The most significant being the price of these metals are set by the market, not the company. Which means the battery stock is subject to fluctuating market prices for its products. The effects of this can be seen by looking at its net income over the last five years.
Furthermore, most of its operations are international. And securing mining licenses can be a challenge, especially in developing nations with unstable political environments.
Energy storage upgraded
The second battery stock is another mining company, Anglo Pacific Group (LSE:APF). Unlike Glencore, the business doesn’t dig up any nickel, cobalt, or aluminium. But what it does produce is vanadium.
Why does this matter? To explain, let’s take a quick look at the science of battery technology.
Lithium-ion batteries are capable of high-density energy storage. This makes them ideal for use in small electronic devices. However, continual recharging decreases their lifespan and efficiency. That makes them a pretty poor choice for electrical grids as the batteries would be continually charged and discharged.
That’s where vanadium-flow batteries come in. They can store large amounts of energy with minimal maintenance required. They can also last up to 20 years without degradation from charge cycles. The technology is very difficult to minimise, and so you won’t see them being used for electric vehicles. But size is less of a problem when powering a national electrical grid.
Unfortunately, just like Glencore, the battery stock is exposed to the same risks. That means non-existent pricing power and complex negotiations to secure additional mining sites.
The Bottom Line
The transition towards electric vehicles and renewable energy sources continues. As a result, the need for efficient energy storage is surging.
Personally, I find the vanadium-based batteries to be far more promising, especially since the energy sector is a huge market to tap into. In my opinion, the risks, while big, don’t outweigh the potential rewards. And since I’m already a shareholder of Anglo Pacific, I think it might be time to increase my position.