BofA names 4 stocks to tap the world's largest EV market — and says one has 71% upside

Published Wed, May 31 20238:09 PM EDT

China's electric vehicles are "much more competitive than before" — and it's likely to remain the world's largest EV market in 2025, according to BofA. The bank said in a May 29 note that it still expects China to account for 40-45% of the world's EV market by 2025 despite challenges from the U.S. Inflation Reduction Act and Europe's Green Deal Industrial Plan. Although that's lower than its current levels of nearly 60%, "China EV products are much more competitive than before, and China will continue to see EV penetration expanding," according to the bank. BofA shares some tips on how investors can position themselves in the country's EV market. Stock picks BofA said Chinese automakers are accelerating technology upgrades and innovation within their vehicle models, leading to "outstanding user experience." But it's selective on automakers. Its top picks are BYD — a Buffett-owned stock — and Li Auto as their "brand equity strengthens" and export sales grow. "We reiterate Buy on BYD for its impressing profit per car improvement and overseas expansion story and Li Auto for its solid sales and successful brand building and product strategies," BofA said. Its price target for BYD is 380 Hong Kong dollars ($48.50), representing about 50% potential upside. For Li Auto, it gave the U.S.-listed shares a price target of $37, or 27% possible upside. As for the EV market, BofA is bullish on its battery supply chain in particular. The market share of the top six China EV battery suppliers was 60% of the global total, up from 40% in 2018, the bank said. "The growth will be supported by China's EV penetration expansion and also overseas order/share gain as they expand overseas," BofA analysts wrote. Its top pick in EV batteries is CATL , which it said it recently upgraded to a "buy" rating. "We have a positive view on CATL, as we believe it is competitive in global market and should see market-share gain through its product innovation capability, and cost-control measure," said the bank. It gave CATL a price target of 306 Chinese yuan ($43), or 38% upside. Another EV-related sector that BofA is bullish on is copper. "Amid supply shortage of key minerals, who can control the upstream and midstream of the supply chain will be particularly critical," said the bank. By 2025, China will control 44% of the world's refined production in copper, BofA said. "Raw material markets are tight already and will likely get tighter going forward – we see a deficit of 8%-33% across copper, aluminium, lithium, cobalt, and nickel by 2030," BofA analysts wrote. BofA's top pick in copper is Chinese miner Zijin Mining , which it gave a price target of 18 Hong Kong dollars, or 71% upside. — CNBC's Michael Bloom contributed to this report.