Forget Tesla? Citi and HSBC name 2 alternatives to play the EV boom

Published Mon, Oct 31 20228:24 PM EDT

Tesla might be front of mind when it comes to electric vehicles, but it isn't the only option for investors seeking exposure to the sector. Earlier this month, the EV behemoth reported a mixed bag of results, beating analysts' expectations on earnings but falling short of estimates on revenue. Morgan Stanley cut its price target on Tesla from $350 a share to $330 last week following the earnings release, citing unexpected headwinds in the fourth quarter and beyond. Analyst Adam Jonas said future estimates need to account for foreign exchange pressures, demand destruction and inflated input costs. Citigroup said in an Oct. 21 note that it remains bullish on the long-term global electrification trend. However, along with HSBC in a separate note, said that investors seeking to cash in on the long-term growth potential of EVs could turn to names in the battery supply chain instead. Stock picks Both Citi and HSBC count Contemporary Amperex Technology (CATL) and Albemarle Corp among their top stock picks to tap the growing demand for lithium-ion batteries. Citi also says CATL is a top stock picks within the battery supply chain, describing the company as a "battery leader." A weakening demand outlook for EVs and concerns over the impact of the Inflation Reduction Act have also already been priced in to CATL's stock price, Citi added. The bank has a price target of 557 Chinese yuan ($76.80) on the stock, representing a potential upside of 49.3% to its closing price of around 373 Chinese yuan on Oct. 31. Citi also like Albemarle. "The EV battery market clearly needs tons, and we believe ALB is the best positioned lithium producers to capture volumes with its existing world class assets," Citi analyst P.J. Juvekar wrote on Oct. 21. Read more Tech stocks are tumbling but one fund manager still loves Microsoft. Here’s why These 'all-weather' stocks can protect your portfolio in a recession: Outperforming fund manager Citi said the company is better positioned to benefit from higher prices compared to the last cycle, having aggressively restructured contracts to more variable pricing, Juvekar added. Shares in Albemarle closed at around $280 on Oct. 30. Citi has a price target of $345 on the stock, which implies a potential upside of 23.2%. Battery boom HSBC has forecast demand for EV lithium-ion batteries to grow at a compounded rate of 32% into 2030. "Over the same period, the average selling price of the lithium-ion battery is expected to fall by 43%, making it more affordable for the emerging EV transport sector," HSBC's strategists, led by Amit Shrivastava, said on Oct. 26. The bank expects the global energy storage market to attract investments of $662 billion over the period of 2019 to 2040. Meanwhile, Citi estimates global EV penetration will reach 55% by 2030. The bank sees global battery demand for EVs and energy storage systems to grow 62% this year and a further 29% in 2023.