Tesla Motors (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 (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.


Flickr/Wesley Fryer  
  More than 6,000 lithium-ion batteries like this one are found inside the car battery used by the Tesla Model S.


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 (NYSE: F) and General Motors (NYSE: GM), Toyota (NYSE: TM) and Nissan (OCT: 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.

But now the reversal is in play, on both the chart and the income statement. Polypore's recent second-quarter results saw a huge rebound in lithium-ion battery sales, jumping more than 150% from last year to $42 million as electric car sales once again surged higher. The company also reported impressive margin strength, reporting an operating margin of 75%. That big rebound has gone a long way to support sentiment, earnings and shares.

But that impressive turnaround is just the beginning of a long-term trend. Because Polypore is in position to cash in on booming electric car sales. August was a record month for domestic electric-car sales, jumping an eye-popping 50% from the previous month, to 11,363. And that trend is showing no sign of slowing, with year-to-date electric-car sales of 60,000, already well past last year's total of 53,000. Polypore will continue to benefit from supplying industry-leading electric-car makers with lithium-ion battery technology.

The good news has analysts looking for big returns from Polypore, calling for 38% earnings growth in 2014 and average annual earnings growth of 16% in the next five years.

Risks to Consider: Polypore's lithium-ion division will be driven by sales volumes in electric cars. Weakness in 2012 before a big rebound in 2013 underscores how vulnerable the high-growth electric-care industry is to short-term fluctuations in demand.

Action to Take --> Polypore's most important division is back on the mend after a tough 2012. That has shares stabilizing after a sharp 43% drop in the past two years. Although that contraction did sweeten the valuation, Polypore isn't exactly a value stock. Shares currently trade with a forward P/E (price-to-earnings) ratio of 35, which is a premium to 10-year average of 23 and peer average of 18. But as a growth stock with mounting momentum and big long-term potential, Polypore is still a buy at current levels and below $45.

Related Articles
  1. Stock Analysis

    The Biggest Oil Producers in Asia

    Learn which Asian countries deliver the most crude oil to market, and discover what companies are the biggest producers in each country.
  2. Stock Analysis

    The 5 Biggest Russian Oil Companies

    Discover the top Russian oil companies by production volume and find out more about their domestic and international business operations.
  3. Insurance

    The 5 Biggest Russian Insurance Companies

    Discover the five companies that dominate the Russian insurance market, and learn a little more about their business operations and ownership.
  4. Insurance

    Biggest Life Insurance Companies in the US

    Read about the top life insurance companies in the United States as measured by written premiums and learn a little more about their business operations.
  5. Stock Analysis

    The 7 Biggest Chinese Mining Companies

    Read about the seven largest Chinese mining companies as measured by revenues, and learn more about the types of mineral resources they mine.
  6. Stock Analysis

    The 6 Biggest Life Insurance Companies in Canada

    Read about the biggest life insurance companies in Canada, and learn about their business operations and the types of products they offer.
  7. Stock Analysis

    The 7 Biggest Canadian Natural Gas Companies

    Read about the seven biggest Canadian natural gas companies as measured by production volume and learn a little more about their recent performance.
  8. Stock Analysis

    The 6 Biggest Chinese Energy Companies

    Read about the six companies atop the Chinese energy industry as measured by consolidated revenue, and learn more about their energy operations.
  9. Stock Analysis

    The 5 Biggest Chinese Oil Companies

    Read about the top five Chinese oil companies as measured by crude oil production volume, and learn a little more about their business operations.
  10. Stock Analysis

    The 7 Biggest Canadian Energy Companies

    Read about the largest seven Canadian energy companies as measured by market capitalization, and learn more about their energy operations.
  1. What is the long-term outlook of the metals and mining sector?

    An industry agency council was established by the World Economic Forum in 2014 to serve as an advisory board on the future ... Read Full Answer >>
  2. What is the railroads sector?

    The railroads sector is comprised of publicly traded stocks for companies that operate railroad tracks and/or trains. Railroad ... Read Full Answer >>
  3. Who are Amgen Inc.'s (AMGN) main competitors?

    Biotech giant Amgen Inc (AMGN) bills itself as one of the first biotechnology firms. It was founded in 1980 and has grown ... Read Full Answer >>
  4. What's the most expensive stock of all time?

    Back in late August 2012, Apple’s (AAPL) stock price reached nearly $700 per share. The stock has since split but has yet ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!