Green transformation will drive high growth in batteries

There are four companies in the basket marked with (**) which means that they do not have a tradable instrument on the SaxoTrader. We have included these companies in the basket because they are an important part of the battery industry and we have decided that the accuracy of the basket is more important than its tradability. Besides the companies not tradable on the SaxoTrader, there are also five companies that have been excluded from our basket.

• Tesla: the energy storage business is too small to matter
• BYD: battery business is only 8% of total revenue
• SK Innovation: battery business is only 5% of total revenue
• Akasol: is getting acquired by BorgWarner

The global market for lithium-ion batteries is projected to reach $92bn in 2025 driven by the adoption of electric vehicles and to a smaller degree energy storage more generally. As we wrote in our research note back in August 2020, Bloomberg New Energy Finance estimates that a lithium-ion battery pack costs around $156/kWh in 2019 and will drop to $94/kWh in 2024 and to only $62/kWh in 2030 unleashing more applications and faster adoption of electric vehicles. The main bet on the battery industry is a bet on electric vehicles, consumer electronics, electric bicycles, and maybe semi-trucks. For larger and more heavy transportation batteries may not rule compared to fuel cells running on hydrogen. For energy storage more generally, the debate is raging about whether hydrogen or batteries will prove the winner.

The biggest pure play on batteries is the Chinese battery maker Contemporary Amperex Technology (CATL), with a market value of $103bn, but the stock is unfortunately listed on the ChiNext board under the Shenzhen Stock Exchange and thus only accessible for professional investors. This company has recently been chosen to be the preferred supplier of batteries to both Tesla and Volkswagen, and thus seems to have a strong outlook. Another company worth mentioning is QuantumScape, which is engaged in solid-state batteries which has the potential to hold more energy and recharge faster, and thus is play on the evolution of the lithium-ion battery technology.

Battery related stocks have outperformed the market

Our battery basket has had a tough 2021 down 11% being the worst performing theme basket we are tracking. Performance has been highly correlated to our green transformation basket, but over time we expect the two baskets to reflect different trends. The battery basket is up 422% since December 2015 in total return terms beating the MSCI World. Our theme baskets will always, since we use market cap as a key filter, have a survivorship and selection bias as thus the long-term performance chart should be viewed with a grain of salt. Past performance is no indicator of future performance. However, it is the performance going forward that will create the big value in understanding the market dynamics.