Goldman Sachs says EV batteries are becoming 'critical' and names 2 stock picks

Published Tue, Nov 22 20228:24 PM EST

Electric vehicle batteries are gaining "critical importance" as part of the energy transition, according to Goldman Sachs, which named a number of stocks set to benefit as countries diversify their supply chains away from China. China currently accounts for around 60% of global EV battery demand, but this share is set to decline to 30% by 2030, Goldman said in a Nov. 14 report. Meanwhile, demand in other markets such as the U.S., European Union, and India is set to pick up. Significant investment — to the tune of $160 billion for the U.S and EU — is required to develop a fully localized battery supply chain, without China's involvement, Goldman said. Some headway has been made, but more needs to be done, it added. For instance, the U.S. now has multiple sourcing options for lithium, a key metal in EV batteries, despite limited local production, due to trade agreements with Australia, Chile and Canada. Top battery picks "We prefer enablers who are set to benefit from the US IRA," the bank's analysts, led by Nikhil Bhandari, said, referring to the U.S. Inflation Reduction Act . Goldman's top battery stock picks include "home-growth companies ... getting ready for mass production." In the U.S., Tesla stands out as the stock to buy, according to the bank. "We see Tesla as benefiting from being an early mover, and already having high volume supply in Nevada (via its partnership with Panasonic), and being in the process of ramping up its own 4680 cell production in Texas (which the company plans to use on production vehicles starting in 4Q22)," said the bank, referring to Tesla's new battery cell. It also noted that Tesla has said it may open a lithium refinery in Texas. Goldman's 12-month price target for Tesla is $305, giving it upside of around 69%. In Europe, Goldman likes Freyr Battery , which it says is a major beneficiary of the U.S. Inflation Reduction Act. Earlier this month, the company announced plans for U.S. gigafactory in Georgia. "We view FREYR as well positioned to succeed in the future, due to their focus on [lithium iron phosphate] batteries that are designed for battery storage," Goldman said. It gave Freyr a buy rating, and a 12-month price target of $19 – or upside of around 38%. — CNBC's Michael Bloom contributed to this report.