Tesla Motors Inc (NASDAQ:TSLA) has been one of the best ways to cash in on the growing demand for electric cars. After climbing steadily for three years, shares have shot higher this year, surging 390% in just the past nine months.
But despite that very bullish move, shareholders got a big scare last week when a video of its Model S EV catching fire went viral across the Internet. That sent Tesla plunging 10%, carving about $3 billion off its market cap.
While there’s no question Tesla is a great company, it’s a good example of the risks associated with investing in original equipment manufacturers (OEMs): Consumers are fickle, and bad public relations can be a killer. And that can spell big trouble for shareholders.
There’s a better way to cash in on growth in the electric car industry.
Unlike OEMs, there is little model-specific risk. And unlike Tesla, trading with a ridiculous valuation, shares of this global leader are trading at a relative discount after a short-term pullback. Take a look at the dip below.
The chart may look a bit gloomy right now, but the pullback is creating a great opportunity to buy a global leader while shares are on sale.
Polypore International, Inc. (NYSE:PPO) is a $1.9 billion global leader in the lead-acid and lithium-ion battery markets. The company’s largest segment is the traditional lead-acid battery market, where it derives about 47% of its annual revenue. That division continues to perform well, with recent second-quarter results showing 9% revenue growth from last year to $80 million.
But the real driver of growth for Polypore is its lithium-ion battery segment, a major supplier of lithium-ion batteries for electric cars. Polypore is already one of three market leaders in the space with 20% market share. Its roster of clients comprises the industry’s biggest and most powerful brands, including Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM), Toyota Motor Corporation (ADR) (NYSE:TM) and Nissan Motor Co., Ltd. (ADR) (OTCMKTS:NSANY).
The division struggled through a challenging 2012 when electric-drive vehicle (EDV) sales came in below expectations, leading to bloated customer inventories and heavy margin pressure. That’s the reason for the big dip in the chart above. Many investors sitting on big gains from 2010 and 2011 chose to take some profit with bad news in the air.