HSBC said the electric vehicle market is expected to reach a milestone next year. It said its global penetration could reach “the important threshold of 20%” next year – “heralding its first entry into the mass market”. “This has significant implications for battery manufacturers,” the bank wrote in a Nov. 1 note. “Mass-market consumers are more price-sensitive, so we expect automakers to seek significant cuts,” it explained. Battery cost, which accounts for 40% of the total manufacturing cost of electric vehicles.” HSBC said that while potential buyers will consider several factors such as infrastructure, driving range, safety, environmental friendliness and design, the mass market Price will determine their final decision. HSBC said that given that battery packs account for about 40% of the total manufacturing cost of pure electric vehicles, cost reduction is the key to “parity” and success in the mass market. HSBC said battery manufacturers will face huge pressure on profits. “The positive side of pricing pressure is that the pace of market consolidation should accelerate. In turn, the scarcity value of competitive battery producers that can reduce the cost of supplying high-quality batteries will rise,” it said. HSBC said that despite the bright long-term outlook, major battery manufacturers’ share prices have underperformed due to concerns about pressure on margins. But it said, “We think leading battery manufacturers can handle this challenge and believe concerns about oversupply are overdone.” The bank said it preferred pure-play battery manufacturers given their cost competitiveness and strong customer base. Battery market leader. It lists the following companies with a Buy rating. LG Energy Solution: HSBC said the company stood out due to its size and technology; financial “strength”; and strong customer base. HSBC said: “This should all help lock in its cost leadership, a key factor needed to survive in the mass market. Companies that lack a solid customer base and cost competitiveness are likely to lose ground.” LG Energy Solution has a price target of 640,000 won ($485.9), representing a potential upside of nearly 55%. CATL: HSBC said CATL has been increasing its share of the overseas electric vehicle battery market and believes its technology leadership and strong production commitments will help it continue to maintain this momentum. “Given its leading technologies (e.g. Shenxing fast-charging lithium iron phosphate batteries, M3P batteries), best-in-class delivery record and increasing global production, we expect the company to gain more sales and medium-term market share.” HSBC . The target price given by CATL is 266 yuan ($36.5), with a potential upside of about 41%. Samsung SDI: HSBC said the company has a high share of the high-end electric vehicle market, accounting for about 20% to 30% of it. HSBC said: “SDI has high exposure to this segment through major customers such as BMW, Audi and Rivian, so we believe the impact of OEMs’ aggressive pricing for the mass market will be relatively limited.” Samsung SDI The target price is 640,000 won, with a potential upside of approximately 52%.
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