While oil and its refined derivatives are still the mainstay of our energy economy, their prices are rising – in fact, high prices for gasoline and diesel are major drivers of the current high rates of inflation, and are partly responsible for the strong push to promote electric vehicles (EVs).
But switching to EVs doesn’t end our reliance on energy. It will just make us trade one issue – reliance on oil – for another – reliance on lithium batteries. In this case, as Elon Musk has said, “Lithium batteries are the new oil.”
Canaccord analyst George Gianarikas seems to agree with Musk, noting: “We see multiple parallels between the communications revolution of the late 1990s to 2000s and today’s energy systems revolution. As batteries are the new crude, we see the pioneering, invention, and exploration of new battery technologies as modern wildcatting – high-reward endeavors but not without risk.”
Gianarikas doesn’t leave us with a macro view of the industry. The analyst goes on to give a drill-down to the micro level, and picks out two lithium battery stocks that he sees as potential winners in this expanding field.
In fact, Gianarikas is not the only one singing these stocks’ praises. According to the TipRanks platform, each boasts a “Strong Buy” consensus rating from the broader analyst community, and offers up substantial upside potential, on the order of 100%, or more. Let’s take a closer look.
The first lithium battery stock we’ll look at is Enovix Corporation, a manufacturer focused on creating the next generation of battery technology. Due to the high power requirements of EVs, and the demands that the vehicles will make on power and charging capacities, the company is building new technologies to meet the challenges. Enovix is working with a combination of silicon anodes, 3D architecture, and anti-swelling constraints to develop a battery with higher energy density for high-end applications from smartphone and other mobile computing devices to consumer EVs.
Enovix is working with a proprietary 3-dimensional battery cell architecture designed to increase the energy density of each battery. The tech is based on the use of silicon anodes that have potential to double the energy storage capacity of the battery over current graphite-based anode technology. The high energy density of Enovix’ battery design has influenced the course of the company’s development work, as it has had to meet issues of architectural constraints, charge efficiency, cycle swelling, and cycle life.
Enovix is a highly speculative stock, as the company has not yet reached the stage of regular production. In the last reported quarter, 3Q22, the company did produce batteries – but these were non-revenue generating sample items, rather than regular sales.
The speculative nature of the stock, and its distance from true revenue generation, has not deterred Canaccord’s Gianarikas from recommending the stock.
“Enovix is bringing a groundbreaking architecture to battery design and manufacturing that has the potential to revolutionize the sector. The company has also amassed a strong sales funnel, endorsements from hefty industry participants (e.g., Samsung), and seasoned leadership… the company must now prove it can manufacture its cells at scale and profitably. We have confidence it can and that this process will result in strong equity returns for shareholders,” Gianarikas opined.
Looking forward from this stance, Gianarikas rates the stock as a Buy with a $20 price target to imply a robust one-year upside potential of 133%.
This speculative small-cap battery designer has picked up 8 recent analyst reviews – and they are all positive, giving the stock its unanimous Strong Buy analyst consensus rating. The $20.64 average price target is in-line with the Canaccord view, and suggests a 141% upside in the next 12 months.
The next company we’ll look at is focused on solving the problem of intermittency in renewable energy. The chief sources of renewable power, wind and solar, suffer from an obvious problem: the wind can die down, and the sun can set or be obscured. It’s no secret that wind and solar renewable power requires an energy storage system to help meet the challenge which intermittency poses. Dragonfly Energy Holdings is working on this issue.
The company is approaching it on the logical path, of improved battery technology for smarter and more efficient energy storage. Dragonfly’s storage tech is based on a proprietary – and patented – solid-state battery cell design. This past December, Dragonfly made an announcement of an important step toward its manufacture of solid-state battery cells, when it revealed a new patent grant by the US Patent and Trademark Office. The grant, a patent for ‘systems and methods for dry powder coating layers of an electrochemical cell,’ helps to protect Dragonfly’s intellectual property, and thereby clear the way toward manufacturing in the public square.
As it works toward a production ramp-up and regular sales, Dragonfly is also preparing a lineup of products. The company has 10 battery models ready for production, along with an advanced regulator alternator. The battery line uses a lithium-ion deep cycle design, and features batteries suitable for 12-volt, 24-volt, and 48-volt systems, where they can replace traditional – and highly toxic – lead-acid batteries.
Dragonfly, like Enovix above, is pre-revenue, and so a speculative stock. It is also quite new to the public markets, having entered the NASDAQ index just last October with the completion of a SPAC transaction. The business combination, with Chardan NexTech Acquisition 2 Corporation, saw Dragonfly receive $250 million in gross proceeds, and put the DFLI ticker into the public eye on October 10.
Standing squarely in the bull camp, Canaccord’s Gianarikas rates Dragonfly shares an Outperform (i.e. Buy), and his $15 price target implies a robust upside of 116% for the next 12 months.
Backing his bullish stance, Gianarikas writes: “Dragonfly has created a strong niche leading traditional lead-acid markets into the li-ion age with its premium offering. We expect the company to continue gaining traction in RVs and penetrate additional markets – including marine – to supplement growth. Longer term, Dragonfly’s solid-state efforts add optionality to the equity as the company looks to develop into a vertically integrated leader in energy storage markets. Dragonfly must now prove it can sustain its premium pricing, penetrate new verticals, and make its solid state offering a reality.”
Overall, while there are only 3 recent analyst reviews for this emerging battery company, they’re all positive and the stock boasts a unanimous Strong Buy analyst consensus rating. Dragonfly shares are selling for $6.93 and the $14 average price target indicates room for a 102% upside in the year ahead.