The world is in the early stages of a long process of electrification , and the competitive landscape will favor battery makers, according to Citi. The bank said the U.S. Inflation Reduction Act (IRA) could give a significant boost to electric vehicle penetration in the U.S. — a “step forward” despite the country’s restrictions on critical minerals and other components. “Assuming the battery capacity ramps up as planned in the US, there should be enough IRA-compliant battery supply to meet the base case demand by 2026E,” Citi said in a July 28 note. The bank added that margins in the battery sector will be supported till 2024, thanks to cost savings on components. Overall, EV battery demand is set to rise 22% year on year in 2023, according to Citi. Though that’s lower than the growth in 2021 and 2022, the bank predicts that demand is set to accelerate again in 2024 and 2025. “The long-run electrification story remains strong but near-term demand could be affected by multiple factors including macro economics, consumer sentiment, policy, energy price etc,” Citi said. China remains the largest battery market, accounting for 58% of total demand this year, it said. Stock picks Citi’s top pick to play this sector is Chinese battery maker Contemporary Amperex Technology Co, or CATL , saying it looks well positioned to benefit from long-term growth in the global EV market. “We see strong competitiveness in CATL thanks to its continued R & D efforts, strategic upstream investment, effective cost management, well-established global customer base, and strong pipeline of expansion projects to meet customer demand,” Citi wrote. It gave CATL a price target of 329 Chinese yuan ($45.9), or potential upside of 38%. The bank’s picks also include the following: LG Energy Solution: Citi said it’s one of the “primary beneficiaries” of the IRA. “LGES can solidify its market position in North America and continue to capture market share,” the bank added. It gave LG Energy Solution a price target of 690,000 Korean won ($537), or potential upside of 23%. Panasonic : Citi expects battery operations at the firm to grow into a “mainstay business” for the group. “Being able to take investment risks to meet rapidly escalating demand represents a major turning point for the company and the battery business.” It gave Panasonic a price target of 2,200 Japanese yen ($15), or potential upside of 25%. Albemarle : Citi says Albemarle is its preferred U.S. stock. “As one of the largest and lowest-cost players in the lithium industry, it looks well placed to leverage off EV demand growth,” the bank said. It gave Albemarle a price target of $275, or potential upside of nearly 30%. — CNBC’s Michael Bloom contributed to this report.
