EV Battery Makers Catch the Eye of Goldman Sachs and Cathie Wood

Last week, analysts at Goldman Sachs raised their estimates on battery electric vehicle (EV) adoption in the United States, given new policy momentum from the Biden administration, improved EV economics and carmakers’ accelerating shift to EVs. The firm now estimates that EVs will make up 20% of U.S. sales in 2025, 40% in 2030, 60% in 2035 and 75% in 2040.

Globally, EV sales are forecast to comprise 11% of 2025 sales, 25% of 2030 sales, 35% of 2035 sales and 47% of 2040 sales.

More EVs imply more batteries, and Goldman analysts have raised their estimates for automotive battery demand by 19% for 2025, 33% for 2030, 15% for 2035 and 8% for 2040. In gigawatt-hours (GWh), demand is now forecast at 828.7 GWh in 2025, 1,943.1 in 2030, 3,063.0 in 2035 and 4,628.7 in 2040. Between 2020 and 2040, global battery demand is forecast to increase by 28 times. The largest growth period is the years between 2025 and 2030.  In other words, right around the corner.

Battery costs are forecast to decline dramatically, from around $15,000 per GWh to $10,000 by 2025 and $7,500 by 2030.

Among the China-based battery makers that Goldman Sachs sees as benefiting most from rising demand for batteries is Hong Kong-listed BYD, which trades American depositary receipts (ADRs) over the counter in the United States under the ticker BYDDF. Each ADR is equivalent to 50 ordinary shares. In addition to EV batteries, BYD also manufactures and sells solar photovoltaic cells and other types of batteries for products such as mobile phones.

Goldman Sachs analysts estimate that BYD’s share price will rise by 381% over the next 12 months and 289% over the next two years. As of Friday morning, Cathie Wood’s Ark Autonomous Technology & Robotics ETF (NYSEARCA: ARKQ) owns about 1.3 million of the company’s ADRs, valued at around $56 million.

The other battery maker that Goldman analysts have highly favorable outlook on is Shenzhen-traded Contemporary Amperex Technology (CATL). The stock does not trade in the United States. The analysts expect the shares to add 171% over the next 12 months and 260% over the next two years.

Samsung is expected to see a share price gain of 169% over the next 12 months while LG Chemical is tabbed to rise by 185%, but both lag CATL over 24 months. Samsung, LG Chemical and Panasonic all produce cells for EV makers.

Newly public QuantumScape Corp. (NASDAQ: QS) is another stock Goldman Sachs analysts include in the cell-maker category. The analysts projected that shares would rise by 206% in the next six months, but that target may be out of reach after QuantumScape priced a secondary offering of 10.4 million shares at $40 a share. The stock closed at $56.97 on the day Goldman published its research and had traded above $62 a share just a few days earlier. The shares would have to rise to around $180 by late September to meet this forecast. QuantumScape’s post-IPO high is $132.73.

Only automakers Tesla Inc. (NASDAQ: TSLA) and Nio Ltd. (NYSE: NIO) are forecast to see faster growth over the next two years. Goldman analysts forecast Tesla stock to rise by 660% and Nio shares to rise by 1,386% over the next 12 months. In the next two years, Tesla stock is estimated to rise by 1,129%, while Nio’s jumps by 665%.

Other automakers that have exposure to the EV market are also forecast to see solid share price gains over the next 12 months. Kia, once considered a good bet to build a self-driving vehicle for Apple, is expected to see a share price gain of 217%, while Mercedes-Benz maker Daimler is tabbed for a gain of 211%. Hyundai (182%), GM (172%), Ford (149%) and Volkswagen (113%) are also in the mix, with BMW and Geely (101%), Nissan (64%), Honda (51%) and Toyota (39%) all posting excellent if not spectacular price increases.

Next month, Daimler is set to introduce its Mercedes-Benz EQS with a driving range of 435 miles on a full charge. The new model is the equivalent of the brand’s S-class fossil fuel-powered brand and is expected to be priced starting at around the same level (roughly $110,000). The new Mercedes-Benz EQA luxury subcompact crossover EV is expected to cost about $57,000, and the 2021 EQC crossover EV starts at around $69,000.

A major risk to the Goldman Sachs forecasts for battery makers like BYD and CATL is that demand will rise so fast that production yields would have to rise above 90% to meet the demand. As demand for more complex batteries rises, yields could fall to just 70% of capacity.

Other risks include rising material costs. Lithium, cobalt and nickel are forecast to account for 20% of a battery’s cost in 2025. If that total rises to a historical peak, the three minerals would account for another $18 per kilowatt-hour of battery cost per EV. Battery costs account for between 20% and 40% of the cost of an EV, and that extra $18 pushes the battery cost up near the top of that range.