Global electric vehicle sales soared an impressive 55% in 2022, and they are expected to jump 35% this year, taking them to 14 million. In the first quarter of 2023, 2.3 million EVs were delivered. Of course, all of these EVs have large batteries, and all of those batteries are made of raw materials. The companies that churn out those raw materials are going to make a great deal of money, making it a good idea to buy the best battery material stocks.
Among the most important materials in EV batteries are lithium and copper. Tesla (NASDAQ:TSLA) CEO Elon Musk recently showed how important lithium is to EV makers by literally begging companies to mine and refine lithium. “We’re begging you …. Instead of making a picture-sharing app, please refine lithium. Mining and refining,” Musk said. And according to Mining.com, “A battery electric vehicle requires 2.5 times more copper than a standard internal combustion engine vehicle. Much of that is in the electric motor, some in the battery.”
Given these points, all of the best battery material stocks I will recommend today will be the shares of either copper miners or lithium miners.
In the first quarter, Freeport-McMoran (NYSE:FCX), one of the world’s leading copper miners, produced 965 million pounds of the metal and sold 832 million pounds of it. The company’s EBITDA, excluding certain items, came in a a strong $2.2 billion. It generated operating cash flow of $1.1 billion.
FCX says that, according to an S&P Global study, the demand for copper will reach roughly 50 million tonnes in 2035, up from about 25 million tonnes this year. This comes as “Low carbon technologies [are driving] massive growth in metals demand.” And FCX believes that it can obtain an additional 235 billion pounds of copper to meet the rapidly climbing demand.
If copper reaches $5 per pound and gold stays at its current level of around $2,000 per ounce, FCX estimates that its annual EBITDA would jump to around $14 billion, up from $9.3 billion last year.
Given the large amount of copper needed for EVs and renewables, along with the economic rebound of China, I believe that copper prices will reach $5 per pound within a year or two.
Piedmont Lithium (PLL)
Piedmont (NASDAQ:PLL), a lithium-mining startup, has multiple, positive attributes. Unlike many other such startups, it’s slated to start generating significant revenues within the next 12 to 18 months. That’s because the company obtained an equity interest in a lithium mine located in Ghana. As long as Piedmont infuses enough cash into the venture, PLL will obtain a 50% stake in the project, which is expected to start producing lithium by the end of 2024. Piedmont appears to owe $87 million for the project, and it had $99 million of cash as of the end of last year, with only $1.77 million of debt.
Meanwhile, the company is working to launch a North Carolina lithium mine that’s expected to start producing the metal in 2026.
And most impressively, Piedmont has a deal to deliver lithium to one of the world’s largest consumers of the metal, Tesla. Piedmont is going to supply about 125,000 tonnes of lithium to the EV maker “between the second half of 2023 and the end of 2025.” Piedmont will obtain the lithium from a Canadian company, so its margins from the deal will probably be low. Still, Tesla is likely to continue buying lithium from Piedmont after its North Carolina mine starts producing the metal in a few years.
PLL’s current market capitalization of $1 billion greatly underestimates its long-term value.
Albemarle (NYSE:ALB), one of the world’s largest lithium miners, reported very strong fourth quarter results in February, as its revenue soared 193% year over year and came in slightly ahead of analysts’ average estimates. More impressively, its earnings per share climbed 753% to $8.62, also beating analysts’ mean outlook.
For all of this year, the lithium miner expects to generate net sales of $11.3 billion to $12.9 billion and EPS, excluding some items, of $26 to $33. That means that, at the midpoint of its EPS guidance, ALB is changing hands for a forward price-to-earnings ratio of just 6x. That’s an extraordinarily low valuation, given the company’s rapid growth and leverage to the EV revolution.
Worries about declining lithium prices and a lithium nationalization proposal by Chile’s left-wing president have weighed on ALB stock. But lithium prices are likely to rebound sharply, given the rapid proliferation of EVs. And Chile’s president has said that he’ll honor Albemarle’s mining concession which runs through 2043, although he asked the company to allow the government to get involved in its operations before its contract expires.
But Chile’s congress, which has already rejected the president’s tax reform agenda, is unlikely to approve his lithium nationalization proposal.
Albemarle’s status as a top lithium miner and its low valuation make it one of the best battery materials stocks to buy.
As of the date of publication, Larry Ramer owned shares of FCX. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.