The lithium battery market is one of the most important sectors not just for our smartphones and laptops, but also for the growing electric vehicle (EV) industry. Lithium batteries provide the power and performance that EVs need to compete with conventional cars. According to a report by Grand View Research, the global lithium battery market size is expected to reach $182.5 billion in value by 2030, at a compound annual growth rate (CAGR) of 18.9% from 2021 to 2030. The increasing demand for EVs, especially in China, Europe and the United States, is driving the growth of the lithium battery market. Nonetheless, not all lithium battery stocks are worth your investment.
Some battery stocks are facing serious challenges that could hurt their profitability and share price in the near or medium term. Here are three battery stocks that are waving massive red flags in September 2023.
QuantumScape (QS)
Founded over a decade ago, QuantumScape (NYSE:QS) is a startup that claims to have developed a breakthrough solid-state battery technology that could revolutionize the EV industry. However, the company has not yet proven its technology at scale or in real-world conditions. The company has also faced several lawsuits from investors and former employees alleging fraud and misrepresentation. A recent announcement regarding a $300 million equity offering has also made investors uneasy as this kind of transaction could dilute previous shareholders.
QuantumScape’s stock has plummeted from its peak of $131.67 in December 2020 to $7.03 as of September 20, 2023, which represents a drastic 94.7% decline. The company is burning cash at an alarming rate, and if QuantumScape is unable to bring its product to commercial viability, it may be cash-strapped or forced to take a high-interest loan. Either way, things do not look good for the start-up battery company.
FREYR Battery (FREY)
FREYR Battery (NYSE:FREY) is a Norwegian company that produces lithium-ion batteries for EVs, marine and grid applications. The company aims to become a leading European battery supplier with a low-carbon footprint and a high recycling rate. The company has engaged in a number of partnerships, including one with Siemens (OTCMKTS:SIEGY) to scale a large battery gigafactory production, in order to expand its market reach and production capacity.
However, the company has also been facing challenges, such as enduring commercial delays and being pre-revenue. Early this year, the battery producer’s management team announced the company would not be producing EV batteries in its Norwegian plant primarily due to tax reasons, which leaves FREYR’s EV battery future up in the air. Due to generating zero revenue amidst ever-rising operating costs, FREYR’s valuation multiples are definitely not trading cheaply. In this equities market environment, that’s not going to bode well for traders seeking cheaper valuations.
FREYR Battery’s shares have plummeted 36.9% since the start of the year, and the company’s lack of revenue will impede the ability of its shares to appreciate in the near-term.
Solid Power (SLDP)
Solid Power (NASDAQ:SLDP) is another startup that is developing solid-state batteries for EVs and other applications. The company has received investments from Ford (NYSE:F) and has engaged in extensive partnerships with BMW (OTCMKTS:BMWYY). The company claims that its batteries offer higher energy density, lower cost, and better safety than conventional lithium-ion batteries. Still, the company has had trouble reaching commercial scale and profitability.
In recent quarterly earnings results, Solid Power has posted revenue, mostly derived from its joint partnerships, but the battery producer’s sluggish revenue growth remains largely outpaced by growing operating costs. Solid Power’s forward sales multiple is trading around 8.1 times, which is not terrible when compared with its peers. However, it is not low enough to justify purchasing shares now. The battery producer’s shares have fallen 19.3% YTD. Without question, avoid this and the other battery stocks we mentioned.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.