Goldman Sachs names its top battery stock to play rising demand for electric vehicles

Published Wed, Jun 1 20229:20 PM EDT

With battery prices on the rise but demand for electric vehicles showing no signs of slowing, analysts at Goldman Sachs have named their top stock to play this trend. Goldman Sachs has raised its global average battery pack price forecast by 8% to 26% into 2025, with the bank expecting battery prices to peak in 2023. It noted that while technology and chemistry improvement have led to a decline in battery prices, around 40% of the cost deflation has been offset by higher commodity prices. Despite higher battery prices, Goldman said demand for EVs remains strong, supported by the recent strength in oil prices. "Global demand for autos today sits ahead of supply, with EV sales growth still tracking double digits," Goldman's analysts, led by Nikhil Bhandari, said in a research note on Jun. 1. "EV sales continue to be the bright spot in broader car sales — while growth rates have slowed down from the 2021 levels, March sales were still 29% year-on-year," he added. The bank noted that the balance of power appears to be shifting from the automakers to battery makers, especially in the ex-China market where battery supply demand is tight, the battery industry is more consolidated and where most battery materials cost is now being passed through to the automakers. Goldman's top pick in the battery space is South Korea's LG Chem . The bank likes the company for its "unique portfolio" of exposure to tight and high growth chemicals and materials. The bank also expects the company to deliver compound earnings before interest, taxes, depreciation and amortization of 37% into 2025 — "one of the highest" across global diversified chemicals and EV battery and material plays. The bank also expects the company's battery material business margin to increase from 4.6% in 2021 to 7.8% in 2026. Goldman believes the company offers more favorable risk-reward relative to its peers from a valuation perspective, noting that the stock offers "top quartile growth at bottom quartile valuations." The bank has a price target of 760,000 South Korean won ($610.50) on the stock, which implies a potential upside of 30% to its closing price of 585,000 South Korean won on Jun. 1.

Electric vehicles have been in focus amid the green transition.

Caroline Brehman | CQ-Roll Call, Inc. | Getty Images

With battery prices on the rise but demand for electric vehicles showing no signs of slowing, analysts at Goldman Sachs have named their top stock to play this trend.