Goldman Sachs has picked Tesla and a number of other EV-related stocks to play a "greenflation" trend and rising oil prices. The bank's analysts give most of the stocks 50% potential upside or more. A variety of factors are pushing the price of EV batteries higher — known as "greenflation" — according to Goldman Sachs. These include the rising cost of raw materials, as well as component shortages. But there could also be some upside for EVs. "Despite the negative effects of increased battery prices and lower subsidies on EV sales, greenflation is also likely to have a positive impact as higher gasoline prices, resulting from higher crude oil prices, make EVs relatively more competitive," Goldman's analysts led by Kota Yuzawa said in a March 9 research note. Auto buyers can save around $850 a year if they switch to an EV, if oil is trading at around $100 a barrel , the bank estimated. Stock picks Several companies are likely to be able to withstand price rises due to their "aggressive" business models, Yuzawa said. "We highlight Tesla, VW , BYD , and Toyota , in view of their vertically integrated business models and unique technology strategies," he noted. Goldman reiterated its buy rating on Tesla, saying the company has "been on the forefront of reducing its battery cost structure for several years." The bank likes the fact that it is producing its own batteries, with its Model Y set to be the first vehicle manufactured with its 4680 battery cell — which are cheaper and can store more energy — in the next quarter. Goldman said Tesla has a 49.1% potential upside to its 12-month price target. The bank is also buy-rated on Volkswagen, calling it "the global leader" in terms of investing in future tech. It is set to spend a total of 90 billion euros ($99 billion) on battery electric vehicles, software and hybrids over the next five years, the bank noted, and said the stock has a potential 74.1% upside to its 12-month price target. Toyota has upped its in-house battery production and said that its Lexus brand will be exclusively electric in China, the U.S. and Europe by 2030 . "We see Toyota, thanks to its strong profit structure, as one of the few global automakers capable of constructing a vertically integrated model for EVs, including battery and vehicle energy efficiency technology," Goldman stated. The stock has a potential 46.3% upside to the bank's 12-month price target. Battery winners In the battery space, Goldman likes Warren Buffett-backed BYD , with analysts noting its "technological advances" and "leading R & D." The company trades on the Shenzhen and Hong Kong stock exchanges. In a separate note, published March 8, Goldman picked several "long term winners in the battery industry," including buy-rated Samsung SDI . The analysts noted the company's "strong earnings momentum" due to its fast-growing battery business. Goldman said BYD has a 59.2% potential upside to its 12-month price target. "Rising raw material prices are challenging the long-standing consensus that battery prices will continue to decline in the coming decade," analysts led by Nikhil Bhandari said. He added that "technology diversification and vertical integration will be the key determinants of long term winners in the battery industry." Along with Samsung SDI and BYD, Bhandari named SK Innovation and LG Chem as buy-rated picks in the space.
A parking lot of predominantly new Tesla Model 3 electric vehicles is seen in Richmond, California, U.S. June 22, 2018.
Stephen Lam | Reuters