Missed the electric car boom? Analysts say these battery stocks are set to soar

Published Wed, May 19 20218:59 PM EDT

Evelyn Cheng @in/evelyn-cheng-53b23624 @chengevelyn

Surging electric car sales are boosting investments in batteries that power them. Deals worth $26.7 billion for global investment in electric car batteries were announced in the first quarter — exceeding investments for all of 2020 by more than $5 billion, according to Fitch Solutions. All that money could drive up demand for electric vehicles and batteries as the cars become affordable, thanks to cheaper batteries. While more data is being collected for the current quarter, "we can already see that Europe and North America are continuing their push to catch up with Asia ," Anna-Marie Baisden, head of automobiles at Fitch Solutions, told CNBC this week. Analysts from three investment banks weigh in on which battery-related stocks look attractive. CATL Shenzhen-listed Contemporary Amperex Technology announced the most deals in the first quarter of 2021, accounting for five of seven projects in China, Fitch said. "We believe it remains well positioned to benefit from the fast-rising electrification of the Chinese and European auto markets," UBS analysts wrote in an April 28 report. UBS has a "buy" rating on the stock and expect it can climb to 475 yuan ($73.87) — or 27% higher than Wednesday's close of 375 yuan a share. SK Innovation South Korea's SK Innovation and its majority-owned, battery-focused subsidiary SK IE Technology announced more than $3 billion worth of investment into different parts of eastern Europe in the first quarter, according to Fitch. SK IE Technology listed publicly in South Korea last week at double its initial offering price, for a valuation of about $13 billion, according to Reuters. Daiwa Capital Markets expects parent SK Innovation's battery business revenue will more than double to 3.5 trillion Korean won ($3.1 billion) in 2021. "Although management did not confirm this, we believe it is considering building a third and fourth plant in the US, while also considering (joint ventures) with large global OEMs," the May 13 report said, referring to major automakers. The Daiwa analysts noted that the management disclosed an order backlog worth 80 trillion Korean won, as of the end of the first quarter. The analysts have a "buy" rating and raised their price target to 400,000 won ($354), up from 384,000 won. That's up nearly 44% from Wednesday's close of 278,000 won a share. LG Chem LG Energy Solution — which is wholly owned by South Korea's LG Chem — announced in March it would invest $4.5 billion over four years in the U.S. to produce batteries for automakers in the U.S. and Europe. The deal was one of the biggest of the first quarter, according to Fitch Solutions. In the coming months, LG Energy Solution is expected to list in one of the largest initial public offerings of the year, according to local media. For the company's parent LG Chem, Morgan Stanley said late last month that first-quarter earnings marked a "defining moment." The financial results came in well above the analysts' expectations and surprised particularly in non-chemical units such as advanced materials. The report did not specifically discuss LG Chem's electric battery production. Morgan Stanley has an "overweight" rating on the stock with a price target of 1.5 million won. That's up 70% from Wednesday's close of 881,000 won a share. Tesla suppliers As battery production grows, JPMorgan analysts have their eyes on companies supplying materials and components. "We continue to like EV battery supply chain players Yunnan Energy, Putailai, CATL, Wuxi Lead and Tesla's component supplier Tuopu," the analysts wrote in a May 12 note. They noted that Tesla accounted for 40% of first-quarter sales at Chinese automobile parts company Tuopu. Elon Musk 's electric carmaker also accounted for about 23% of CATL's China EV battery shipments in the first quarter, the analysts said. "Yunnan Energy also has pretty meaningful indirect exposure (through supply to Panasonic, LG Chem, CATL) as well as direct sales to Tesla," the report said. — CNBC's Michael Bloom contributed to this report.

People wearing face masks are seen inside a Tesla showroom at a shopping mall in Wuhan, Hubei province, the epicentre of China's coronavirus disease (COVID-19) outbreak, March 30, 2020.

Aly Song | Reuters

Surging electric car sales are boosting investments in batteries that power them.

Deals worth $26.7 billion for global investment in electric car batteries were announced in the first quarter — exceeding investments for all of 2020 by more than $5 billion, according to Fitch Solutions.

All that money could drive up demand for electric vehicles and batteries as the cars become affordable, thanks to cheaper batteries.

While more data is being collected for the current quarter, "we can already see that Europe and North America are continuing their push to catch up with Asia," Anna-Marie Baisden, head of automobiles at Fitch Solutions, told CNBC this week.

Analysts from three investment banks weigh in on which battery-related stocks look attractive.