Goldman Sachs loves these 4 global battery stocks — giving one more than 120% upside

Published Tue, Jan 23 20246:23 PM EST

Amala Balakrishner @in/amala-balakrishner @_amalabk

As electric vehicle automakers like Tesla and BYD continue to make headlines, Goldman Sachs is watching the battery sector closely. While the investment bank lowered its year-on-year growth forecast for global battery demand from 35% to 29%, it still likes the sector, given the rising adoption of EVs and a reduction in battery costs. "EV penetration remains constructive in our view with US/EU/global 2030 EV penetration at 50%/68%/34% (vs. 2030's 8%/16%/11%). This penetration increase is on the one hand, supported by improved visibility on further battery cost declines," Goldman's analysts led by Nikhil Bhandari wrote in a Jan. 18 note titled "Batteries: Light at the end of the tunnel." Estimating that battery pack prices will hit $91 per kilowatt hour by 2025, the analysts believe that the "cost parity" of battery electric vehicles to automobiles with internal combustion engines could be achieved without subsidies in 2025. Their latest estimate on battery pack prices is a downgrade from the $99 per kilowatt hour penciled previously, due in large part to a downward revision in Goldman's medium-term outlook for U.S. EV sales. Even so, the analysts remain positive on the prospects of the sector, given that "improving visibility of rapidly falling battery prices will likely drive strong demand in 2025E and onward." They also reiterated their buy ratings on several stocks in the sector. Stocks with buy ratings Goldman's buy-rated stocks in the sector include South Korean companies LG Chem, Samsung SDI and LG Energy. It has a target price of 710,000 Korean Won ($530) on LG Chem and 800,000 Korean Won on Samsung SDI, representing potential upside of 81.6% and 123.2%, respectively. Meanwhile, It expects the price of LG Energy to hit 550,000 Korean Won in the next 12 months, representing 47.3% upside. "The Korean cell companies' valuations [are] already pricing in our pessimistic scenario around both margins and total addressable market," the bank's analysts wrote, adding that the companies are beneficiaries of the U.S. Inflation Reduction Act. The IRA provides tax credits for electric vehicles that meet its criteria . Goldman also likes Chinese battery maker Gotion High Tech . The investment bank has a buy rating on the stock at 20.47 yuan ($2.84), giving it around 6.2% upside. While shares of Samsung SDI (SSDIY) are traded in the United States, shares of LG Chem and LG Energy are accessible to U.S. investors via the Mast Global Battery Recycling & Production ETF . Gotion High Tech is traded in Switzerland. — CNBC's Michael Bloom contributed to this report.