While the market for Lithium-ion (Li-ion) batteries has a ton of untapped potential, Tesla Motors Inc.’s TSLA decision to build a $5 billion Gigafactory to meet its requirement of lithium-ion battery packs brought glaring focus on the shortage of supply of this emerging energy storage technology.

Li-ion batteries are a type of rechargeable battery in which lithium ions move from the anode to cathode during discharge, and from cathode to anode when charging. They are a popular choice for electric car manufacturers, and are used by General Motors Co. GM, Navistar International Corp. NAV, BMW AG BAMXF, Daimler AG DDAIF, and Ford Motor Co. F, among many others. Li-ion batteries are also used in cellphones, laptops, and other electronic devices as well as in the aerospace and defense sector.

Back in January, it was reported that Panasonic Corp. PCRFY agreed to invest up to $1.6 billion in Tesla’s Gigafactory. Kazuhiro Tsuga, President of Panasonic, said that "We are sort of waiting on the demand from Tesla. If Tesla succeeds and the electric vehicle becomes mainstream, the world will be changed and we will have lots of opportunity to grow.”

By 2020, Tesla expects the annual Li-ion battery production of the Gigafactory to exceed the global production in 2013. The factory will produce enough battery packs to allow Tesla to build around 500,000 electric cars annually by 2020.

However, Tesla’s Gigafactory will not start production until at least 2017. Until then, the focus will be on other Li-ion battery manufacturers. Thus, it would be a good idea to invest in some companies that manufacture these batteries.

Let’s take a look at two stocks that are looking good at the moment:

1. Arotech Corp. ARTX has two business divisions: Training and Simulation, and Battery and Power Systems. The Battery and Power Systems division manufactures and sells Lithium and Zinc-Air batteries and smart chargers for the military and to the private defense industry in the Middle East, Europe, and Asia.

ARTX stock has gained more than 115% over the past 12 months. Arotech has an average earnings surprise of 156.25%, with an overall average VGM score of “B.” It’s a relatively smaller company; it’s market cap is currently $83.28 million, but Arotech is in a fast growing industry.

This Zacks Rank #3 (Hold) stock is expected to report 122% year-over-year growth in earnings per share (EPS) for its fiscal 2017, based on the Zacks Consensus Estimate of two cents. Arotech has a price-to-book (P/B) ratio of 1.29, lower than the industry average of 1.79. It has seen historic cash flow growth of 27.75% and historic EPS growth of 40%, both well above the industry averages of 4.91% and 11.69%, respectively.

2. Johnson Controls, Inc. (JCI) is a global market leader in automotive systems and facility management and control. In the automotive market, it is a major supplier of seating and interior systems, and batteries. For non-residential facilities, Johnson Controls provides building control systems and services, energy management and integrated facility management.

The company offers a portfolio of lithium-ion battery technology for a range of vehicles, including advanced start-stop vehicles, hybrid electric vehicles (HEVs), micro hybrid vehicles, and plug-in hybrid vehicles (PHEVs).

JCI, a Zacks Rank #1 (Strong Buy) stock, reported an average earnings surprise from each of the trailing 4 quarters of 1.03%. The Zacks Consensus Estimate for the company’s current quarter (ending September 2016) is $1.18 per share, reflecting 84.74% year-over-year growth. Year-over-year sales growth for the current quarter is a whopping 287.21%.

Johnson Controls has a price-to-earnings (P/E) ratio of 10.26, below the industry average of 16.23. Its price-to-sales (P/S) ratio is 0.74, while its current PEG ratio sits at 0.82. JCI stock has seen historic EPS growth of 7.34%.

Bottom Line

According to Frost & Sullivan, the global market for Li-ion batteries is expected to double to $22.5 billion in 2016 from $11.7 billion in 2012. Consumer goods and automobile sectors are driving the demand.

The share of the automobile sector in the Li-ion battery market is expected to grow to 25% in 2016 from 14% in 2012, per the data from Frost & Sullivan. This represents a Compounded Annual Growth Rate (CAGR) of 37%.

With the increasing use of Li-ion batteries in consumer electronic products as well as efforts to promote the use of electric cars by many governments to curb pollution, the demand for these batteries is expected to rise.