Despite the recent sale of electric vehicle stocks like Tesla
TSLA
and Nio
NIO
,
there is still a great deal of interest from investors in the sector, with the expectation that demand for electric vehicles will grow dramatically in the coming decades.
Analysts at Swiss bank UBS
UBS
they are now predicting a steeper adoption curve than previously expected, with electric vehicles penetrating 100% of the auto market by 2040.
The battle to be the most dominant automaker is worth hundreds of billions of dollars, according to UBS, but if you can keep your eyes off the lush carmakers, there is plenty of room for investment in companies linked to the EV boom.
Read too: Tesla’s stock price target more than doubled at UBS, as a longtime skeptic sees the EV leader ‘winning’ in software
One area ready for investment is battery manufacturers for electric vehicles, highlighted by a group of UBS analysts led by Tim Bush, in a note published on March 3.
Analysts at UBS concluded that batteries are the main factor in reducing the cost of electric vehicles. They predicted that the supply of battery cells needed to meet demand growth estimates will result in “regional tightening this year and global shortages in 2025”.
Most: Tesla and Nio sold out, but the EV party is just beginning and China is the key, say these analysts
For EV market penetration to reach 20% in 2025 and 50% in 2030, as projected, the supply of battery cells needs to increase 70% more than previously forecast in the next decade, according to UBS. Supply shortages are imminent, analysts said.
In this rapidly changing space, analysts at UBS say incumbent battery cell manufacturers have a significant cost advantage and predict that there will be a consolidated structure with three main players controlling two-thirds of the market.
UBS analysts are optimistic about three electric vehicle battery stocks and warn investors to stay away from one in particular.
The main stock choice highlighted by analysts is LG Chemical
051910
,
a Korean manufacturing giant and a leader in EV batteries. UBS set a target price for the shares at 1,370,000 South Korean won ($ 1,210), a 65% premium to the price of 831,000 won on March 2 and even more than 50% above the price at 5 March.
More about EVs: Tesla’s market share in Europe continues to fall, with China regaining first place in the global EV race
Another dominant battery manufacturer, Contemporary Amperex Technology Co. Limited in China
300750
,
or CATL, is also a UBS favorite. Analysts set a target price of 475 yuan ($ 73) for CATL shares, a 38% premium to the price of 344.60 yuan on March 2. With shares falling slightly since UBS’s analysis, that target price represents a 48% premium to Friday’s share price.
UBS analysts also like the new material from China’s Yunnan Energy
002812
,
or Yunnan Enjie, who is on the materials side of the industry. Yunnan Enjie manufactures separators, which are essential components of the battery. With a UBS target price of 176 yuan, the shares have the potential to rise 62% above the current price.
But stay away from the European battery cathode manufacturer Umicore
UMI
,
UBS analysts said, because the company “faces threats of substitutions of products and technologies, delays in increasing the capacity of cathodic material and slower penetration of EVs than UBS currently predicts.” Fluctuations in metal prices are another risk the company faces, analysts said. The UBS target price for the share is € 33 ($ 39), 33% less than the share price on Friday.