The battery stocks to buy as the electric vehicle market explodes: UBS

Published Wed, Feb 3 20214:08 AM ESTUpdated Thu, Feb 18 202110:16 AM EST

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

UBS has named its favorite electric vehicle battery stocks, as Tesla 's "aggressive" cost-cutting drive shows that supply chain expenses can be "substantially" lowered while profitability improves. The world is moving "rapidly" towards full electrification, the Swiss bank said. It sees global penetration of electric vehicles, or EVs, topping 80% by 2040, and worldwide demand for EV batteries increasing six-fold by 2025. This booming demand is set to benefit Asian EV battery makers in particular, as they are best positioned to take market share away from incumbents, the UBS analysts, led by Tim Bush, said. They listed their top battery stocks – all of which have a potential upside of around 30% or more. Chemicals company LG Chemical and battery firm SK Innovation, both based in Seoul, South Korea, are among the analysts' picks. They are likely to be "first movers" in the European market, they said, and are best positioned to benefit from potential supply issues. The analysts expect battery supply to be a particular issue in Europe, but argue that it could lead to a boost in profitability for battery makers. LG Chemical is a Tesla supplier, and UBS estimates it will have 32% of the market share of the global EV battery market by 2025, with a potential upside of 49%. SK Innovation, meanwhile, has a potential upside of 29%, according to the analysts. It gives both stocks a "buy" rating. "The Asian materials supply chain is following battery makers to the EU and, in our view, this will cause market share/pricing pressure for incumbents in this market," they said. This trend is set to benefit Chinese battery-makers including Yunnan Enjie, which UBS gives a 33% upside potential and a "buy" rating, and energy company Wuxi Lead , which the bank also rates "buy" with a potential upside of 31%. "Concerns on battery cost/supply as a bottleneck to industry growth have dissipated as profitability with incumbents improved in 2H20 (second half of 2020). Tesla's aggressive cost-down plan also crystallized the view that industrialization of the supply chain will substantially lower costs. Additionally, the market is positive on both new entrants and new technologies," the analysts wrote. The cost of buying an electric vehicle will be the same as a regular car by 2025, the bank's analysts forecast, adding: "We see few reasons why a consumer would not purchase an EV when cost parity is achieved."

Tesla Supercharger

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UBS has named its favorite electric vehicle battery stocks, as Tesla's "aggressive" cost-cutting drive shows that supply chain expenses can be "substantially" lowered while profitability improves.

The world is moving "rapidly" towards full electrification, the Swiss bank said. It sees global penetration of electric vehicles, or EVs, topping 80% by 2040, and worldwide demand for EV batteries increasing six-fold by 2025.

This booming demand is set to benefit Asian EV battery makers in particular, as they are best positioned to take market share away from incumbents, the UBS analysts, led by Tim Bush, said.

They listed their top battery stocks – all of which have a potential upside of around 30% or more.