What Tesla’s Lithium Play Means for Electric Vehicle Stocks

Coming off the heels of Tesla Inc.'s (NASDAQ: TSLA) "battery day," the company has inked a five-year fixed price binding agreement to buy lithium from Australian miner Piedmont Lithium (NASDAQ: PLL). This helped lithium stocks rally on Monday with Piedmont trading up over 200% and Lithium Americas (NYSE: LAC) and others trading in lockstep.

While this is great for lithium stocks today, I see this as a sign that demand will continue to grow, and Tesla is looking to get ahead of the competition and lock up supply for its lithium ion batteries. Elon Musk tweeted out before battery day that the company intends to increase, not reduce battery cell purchases from Panasonic and LG, and even still there may be shortages without action taken. Clearly foreshadowing this week's deal, Tesla sees a big surge coming for electric vehicles.

Electric vehicles existed before the past decade, but sales have grown exponentially in the past 10 years. Still only making up a fraction of the 77 million cars and light trucks sold worldwide in 2019, with 2.2 million passenger plug-in car sales in the same year, there is plenty of room to grow. In fact, California Governor Newsom has called for a transition to electric vehicles, joining at least 15 countries, including France and Germany, that have made similar pledges.

Just think about the sales growth here as California alone sold roughly 2 million cars in 2019.

But for investors looking to pick the winning electric vehicle stock here, the competition might be too stiff. Any EV startup has to square off against Tesla and fight off major automotive manufacturers like Ford Motor Co. (NYSE: F) or Toyota Motor Corp. (NYSE: TM) that want to take over the industry.

Fortunately, there's a better way to profit. A way that lets you cash in on this exciting industry without the risk of backing the wrong horse.

Right now, the infrastructure for electric vehicles is far from built out like the 168,000 gas stations across the country, and that is why I'm looking at this pick-and-shovel play that could be one of the biggest opportunities in EV stocks right now.

This Company Is Keeping Electric Vehicles on the Road

I'm talking about electric car chargers and one of the major companies behind them, ABB Ltd. (NYSE: ABB). It is a Swiss-Swedish multinational corporation with robotics, power, electric equipment, and automation technology divisions. While it supplies many different products, I want to focus on its electric equipment divisions and specifically electric vehicle charging systems.

ABB is a dominant player in electric vehicle charging and offers an entire range of products from AC wall boxes and DC fast charging stations to on-demand electric bus charging systems.

Like California, New York is also pushing to reduce vehicle emissions. According to Bob Stojanovic, Director of ABB's EV infrastructure business in North America, its is using its Terra HP high-power chargers for charging hubs, making the transition to EVs easier for New Yorkers.

The shift to electric vehicles has started, and everyone will need places to charge up, not just at home, but on the road. This is a big reason why Grand View Research believes that the electric vehicle charging infrastructure market is expected to reach over $100 billion by 2027.

Last time I wrote about ABB here, it had recently closed deals with Porsche and Toyota. It is continuing this trend with a recent partnership with Lion Electric to provide charging equipment for its trucks that are bound for Amazon.com Inc. (NASDAQ: AMZN), and a supply deal with Dongfeng Honda, a joint venture between Dongfeng Motor Group Co. Ltd. (OTCMKTS: DNFGY) and Honda Motor Co. Ltd. (NYSE: HMC).

As I mentioned earlier, electric vehicles are in early innings and there is a long way to go to catch up with gas-powered vehicles. The Tesla deal with Piedmont Lithium only solidifies where the industry is heading.

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