We recently compiled a list of the 10 Best Battery Stocks To Buy Now According to Short Sellers. In this article, we are going to take a look at where Sociedad Química y Minera de Chile S.A. (NYSE:SQM) stands against the other battery stocks.
Electric vehicles are the latest trend in the automotive market which is revolutionizing the whole industry. According to Grand View Research, the global electric vehicle (EV) market was valued at $1.07 trillion in 2023 and is projected to grow at a compound annual growth rate (CAGR) of 33.6% from 2024 to 2030 and reach $8.85 trillion by the end of the forecast.
The growth is driven by government policies, incentives, and advancements in battery technology, which are making EVs more affordable and appealing. The transportation and logistics sectors are increasingly adopting EVs due to their lower emissions and operational costs, with companies like Amazon integrating electric trucks into their fleets.
Similarly, Grand View Research believes that the global EV battery market was valued at $44.69 billion in 2022 and is projected to grow at a CAGR of 21.1% from 2023 to 2030. Strategic collaborations among battery manufacturers, e-mobility providers, and energy suppliers are improving battery durability and lifespan, while the increasing production of EVs in countries like China, Germany, and Japan, along with government investments in EV charging infrastructure, is further accelerating the market. However, fluctuating raw material prices, such as lithium-ion, could impact production costs.
The Growing Importance of Critical Minerals in Energy Transition
According to BP’s Energy Outlook 2024, the transition to a low-carbon energy system will require a substantial increase in the use of critical minerals, such as copper, lithium, and nickel, essential for supporting the infrastructure and assets needed for this transition. According to the report, the rapid expansion of electric vehicles is projected to reach 1.2 billion (current trajectory) to 2.1 billion (goal to reach Net Zero) by 2050, which will significantly increase the demand for batteries and in turn, higher demand for minerals like lithium and nickel.
Copper demand is expected to rise by 75-100% by 2050, mostly due to its use in EVs and the extension of electricity networks. Lithium demand could grow 8 to 14 times by 2050, mainly driven by its use in EV batteries, which will account for about 80% of total lithium demand by 2050. Lastly, nickel demand is projected to increase two to three times by 2050, with most of this growth linked to lithium-ion batteries in EVs.
How Competitive Pricing and Leasing Are Shaping the EV Market
In an interview at CNBC Power Lunch, Erin Keating, Cox Automotives executive analyst, explored the factors shaping the EV market. She noted that Tesla and Chevy initially dominated EV sales, which is why a growing supply of used cars from the former is now available. These used EVs have become more affordable, partly due to tax credits of up to $4,000. This is helping to drive sales in the used EV market and making it a more attractive option for consumers.
However, the lease market is offering deals that compete with used EV prices. According to Keating, while this puts downward pressure on used EV prices, she emphasized the benefit of the situation and said that more leased vehicles today will enter the used market in a few years, which will ensure a steady supply of affordable used EVs in the future.
Keating also addressed the issue of buyer’s remorse, as some people are frustrated with the slower development of EV infrastructure and range anxiety. Despite this, she reassured consumers that the batteries in used EVs are holding up well with minimal degradation.
It means consumers can trust the longevity of these vehicles, and automakers are committed to supporting them. Although some challenges remain, she believes that as infrastructure improves, consumer confidence and adoption of EVs will continue to grow.
Our Methodology
For this article, we used stock screeners and ETFs including Amplify Lithium & Battery Technology ETF and Lithium & Battery Tech ETF to identify companies involved in the EV battery market. We then selected 10 stocks with the smallest short interest and listed them in descending order of their short interest. We also mentioned the hedge fund sentiment around each stock which was taken from Insider Monkey’s database of over 900 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A laboratory technician pouring a specialty blend of industrial chemicals into a beaker.
Sociedad Química y Minera de Chile S.A. (NYSE:SQM)
Short Interest as % of Shares Outstanding: 2.27%
Number of Hedge Fund Holders: 9
Sociedad Química y Minera de Chile S.A. (NYSE:SQM) is a leading Chilean company recognized globally for its production of lithium, iodine, and specialty plant nutrients. It is the world’s largest lithium producer. The company was founded in 1968 and over the years, it has expanded its operations internationally.
The company has become a key player in the global supply chain for essential minerals like lithium, which is vital for the production of batteries used in EVs and renewable energy storage. It is among our best battery stocks to buy now according to short sellers.
The company has operations in 110 countries across 5 continents. It has a unique advantage due to its exclusive access to the world’s largest and richest deposits of caliche and brine, located in the Atacama Desert between Chile’s First and Second Regions. These resources provide the company with extensive reserves of essential minerals, including the largest reserves of iodine and nitrate, along with the highest concentrations of lithium and potassium ever recorded.
Additionally, starting in 2017, Sociedad Química (NYSE:SQM) began expanding its geographic reach, particularly in lithium production. This expansion includes acquiring new lithium resources from spodumene in Western Australia through a partnership with Kidman Resources, further strengthening its global presence in the lithium market.
According to its 2023 annual report, the company continued expanding its production capacity across its main business lines. In the lithium sector, the company increased its Lithium Chemical Plant’s capacity to 200,000 metric tons of lithium carbonate by the end of 2023 and aims to reach 210,000 metric tons in 2024. It also began operations at its Mt. Holland mining and concentrator facilities and is on track to complete refining capacity in Kwinana, Perth, by 2025. Additionally, the company refurbished a lithium hydroxide plant in China and began production using lithium sulfate from the Salar de Atacama.
As of 2023, Sociedad Química (NYSE:SQM) sold lithium products to 207 customers across 39 countries, with 92% of sales going to Asia. The company’s largest customers accounted for about 67% of its revenues. In 2023, the company held an 18% market share in lithium production.
As of August 9, Goldman Sachs sees long-term potential in the company. The firm’s analyst, Marcio Farid, upgraded the stock from a Neutral to a Buy rating, while keeping the price target at $46.50 per share, as reported by The Fly. Farid believes that the potential rewards of investing in the stock outweigh the risks. The analyst noted that the company is strategically positioned to benefit from an anticipated improvement in the lithium supply and demand dynamics by 2027.
In Q2, 9 hedge funds had stakes in Sociedad Química y Minera de Chile S.A. (NYSE:SQM), at a combined value of $44.8 million. Kopernik Global Investors initiated a position with 640,997 shares, worth $26.12 million in the company and is the biggest shareholder of the company, as of June 30.
Overall SQM ranks 3rd on our list of the best battery stocks to buy. While we acknowledge the potential of SQM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SQM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.