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Goldman: How to play the electric vehicle boom

  • Goldman Sachs estimates electric vehicles will represent 32 percent of global auto sales by 2040.
  • The firm's analyst projects the battery market will grow to $180 billion in sales by 2040 from just $450 million in 2015.
  • The trend is likely to be a negative one for auto suppliers that make engine parts that electric vehicles don't use.

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Goldman Sachs predicts electric vehicles will have dramatic implications on the auto industry supply chain during the coming decades.

"After more than 100 years, it seems that an auto industry dominated by internal combustion engines is nearing an end," analyst Kota Yuzawa wrote in a note to clients Wednesday entitled "Electric Vehicle Boom: ICE-ing the Combustion Engine."

Yuzawa predicts electric vehicles will grow from 1 percent of 2016 global auto sales to 8 percent by 2030, before increasing to nearly one-third market share in 2040.

The analyst said if governments are more aggressive with incentives or battery technology costs improve, the adoption of electric vehicles may accelerate faster than expected. However, Yuzawa noted, the trend will be negative for many auto parts suppliers because electric vehicles do not have any engine-related components.

"Engine and transmission-related parts makers, which generate high value-add as core suppliers for automobiles, are searching for opportunities to advance in electric motor- and battery-related components, but we expect their growth potential to be called into question as EVs become mainstream," the analyst wrote.

On the flip side, battery technology firms will likely thrive. The analyst projects the battery market will grow to $180 billion in sales by 2040 from just $450 million in 2015.

"The batteries market, which is critical for EVs and therefore a potential source of value-add, will likely expand rapidly through 2040," Yuzawa wrote.

Here are five Goldman Sachs buy-rated stocks the firm recommends to take advantage of the electric vehicle trend.