'Strong growth ahead': Bank names its top EV battery stocks, giving one over 60% upside

Published Thu, Jun 23 20228:58 PM EDT

Japanese investment bank Nomura has named the battery stocks it thinks are set to pop on rising electric vehicle adoption. The bank estimates that global EV penetration will reach 27.2% in 2030, up from 11.8% in 2022, driven by the "irreversible trend" for carbon neutrality. In a note from Jun. 22, Nomura's analysts, led by Cindy Park, said they expect demand for EV batteries to grow by 25% into 2025 — implying strong growth for battery and material stocks. In addition, the industry is also set to be more profitable, with Nomura forecasting EBIT (earnings before interest and taxes) margins to hit 7.8% in 2030, up from 4.9% this year. "We believe EV battery and materials are likely to outperform on higher EV penetration, improved economies of scale, and metal price stabilization. While we have Buy ratings on all battery/material stocks we cover, we prefer companies exposed to popular EV models [such as] from Tesla and BYD , as well as 'leading companies' with visible capacity expansion/ earnings growth in 2023," Park said. The bank also said it expects some battery material companies to show "more resilience in earnings/stock performance in times of macro uncertainties." Stock picks Within the battery space, Nomura likes Chinese battery giant Contemporary Amperex Technology (CATL) . The bank believes CATL's "global leading position" will remain intact in the long-term, given the company's commitment to technology upgrades, strong relationships with top-tiered automakers, and its strengthening ecosystem. The bank has a price target of 585 Chinese yuan ($87.20) on the stock, which implies a potential upside of 8.9% to the stock's closing price of around 537 Chinese yuan on Jun. 23. Nomura also likes South Korea's LG Energy as a beneficiary of increasing auto electrification around the world and rising EV battery demand. The bank expects the company to grow net profit by 61% per annum into 2024. The stock closed at 400,000 Korean won ($307) on Jun. 23, implying a potential upside of 61.3% to Nomura's price target of 645,000 Korean won. LG Chem — parent of LG Energy — also makes the bank's list. The bank believes the stock looks undervalued relative to the growth potential of its cathode, chemical, and battery businesses. It expects the company to grow its cathode and battery earnings by 62% per year into 2024. Shares of the company closed at 551,000 Korean won on Thursday, representing a potential upside of 67% to Nomura's price target of 920,000 Korean won. China's second-largest battery supplier BYD is another stock favored by Nomura. The electric automaker is also backed by Warren Buffett 's Berkshire Hathaway. Read more BYD is selling so many electric cars it's become one of the top three automakers in China The bank likes its number of new model rollouts and vertically integrated business model. It noted that the company's sales growth has not been impacted by the two rounds of price hikes this year. Moreover, various financial incentives for EV purchases from local governments in China should help keep EVs competitive against fossil-fueled vehicles, the bank added. Nomura has a price target of 360 Hong Kong dollars ($45.90) on the stock, representing a potential upside of 16.1% to the stock's closing price of 310 Hong Kong dollars on Jun. 23.