Automakers are increasingly piling into EV battery production, but Bernstein thinks these pure-play battery stocks will continue to dominate. “Vertical integration by auto OEMs’ [original equipment manufacturer] upstream into battery production is a risk to pure play battery makers and under increased discussion given some of the investments being made by industry players,” Bernstein’s analysts, led by Neil Beveridge, said on May 12. ” Tesla is the largest threat to pure play battery makers given their scale of investment and technology,” he added. Despite this, Bernstein expects some pure-play battery makers to continue to dominate the market. “Battery makers such as CATL [Contemporary Amperex Technology] and LGES [LG Energy Solutions] will continue to be the dominant players in the battery industry by market share, with CATL the largest with around 30% market share,” Beveridge added. Beveridge said CATL stands out because of its broad relationships across both Chinese and global auto companies. The company also has arguably the most diverse customer portfolio among battery suppliers, he added. The bank has a price target of 600 Chinese yuan ($88.90) on CATL, representing a 44% upside to its price of 416.70 Chinese yuan on May 23. Bernstein also likes Samsung SDI . “Among the Korean battery makers, Samsung SDI appears to be ahead as the company has started construction of an all-solid state battery production pilot (sulfide-based) in March and mass production targeted for 2027,” it said. The bank has a price target of 816,000 Korean won ($643.60) on the company, implying a potential upside of over 33% to its price of around 611,000 Korean won on May 23. The bank rates CATL and Samsung SDI at outperform (while it puts LGES at underperform). Battery production plans It comes as many global automakers have announced long-term plans to produce their own batteries for their electric vehicles, either directly or in cooperation with manufacturers, the bank said. This push is aimed at reducing battery costs — which now account for 30% to 40% of the total cost of manufacturing an EV — as well as securing a stable supply of batteries necessary for future vehicle production. Bernstein estimates the market for lithium-ion batteries will be worth between $650 billion and $750 billion annually by 2050 — possibly more if raw material prices continue to inflate. The bank expects automakers’ share of global battery capacity to increase from 10% today to 27% by 2030. Three business models There are currently three business models for battery production, according to Bernstein. The first is the vertically integrated model, where automakers manufacture and supply their own batteries. Tesla, BYD , General Motors and Ford will produce at least half of their battery needs by 2025, while Volkswagen and Stellantis are expected to produce a quarter of their battery needs. The second — and most dominant — model is the one in which a pure-play battery maker supplies a battery to an automaker. The third model is the joint venture model. That’s when a battery maker and an auto OEM, or original equipment manufacturer, form a joint venture to supply batteries to the OEM.
An electric vehicle charging point in Stoke-on-Trent, England.
Nathan Stirk | Getty Images News | Getty Images
Automakers are increasingly piling into EV battery production, but Bernstein thinks these pure-play battery stocks will continue to dominate.