Missed out on Tesla? Bernstein flags a different way to play the EV trend — and names its top stocks

Published Tue, Dec 7 20216:53 PM EST

After an boom in electric vehicle stocks over the last few years, Bernstein says attention could be about to shift to the batteries that power EVs — and their environmental impact. Here, the bank names some under-the-radar stocks it says are primed to benefit. Electric vehicle makers have seen their share prices soar over the last few years. Tesla , for example — the world's most famous EV manufacturer — is now valued at more than $1 trillion and its stock is up close to 60% over the past 12 months. But Zhihan Ma, global head of ESG at Bernstein, said the focus could be about to shift, as investors increasingly seek to invest in companies that deliver positive environmental, social and governance outcomes, not just profit. "While EVs have been touted as a key driver of the low carbon transition, attention has largely focused on the emission reduction potential of EVs in use, without paying much attention to the environmental impact during the production or end-of-life cycle recycling phases," she wrote on Dec. 2. The environmental impact of the lithium-ion batteries that are used in EVs is growing in importance, given tighter regulation and the high cost of raw materials needed to manufacture batteries, Ma noted. Batteries could be recycled and used in different vehicles, energy storage, and even wind turbines, she said — noting that the potential market is significant. "Although the market for a 'second life' for EV batteries has not yet reached scale, the 10 million EVs on the road today will reach their end of life and enter the reuse/recycling market by 2040, which could create greater economies of scale for second-life applications," Ma added. Against this backdrop, Bernstein identified stocks with exposure to this EV life cycle. The bank believes that British chemicals company Johnson Matthey is "well positioned for growth" given its position as the world's biggest platinum group metals refiner. The company has announced plans to develop a European EV recycling value chain. EV recycling will also allow cathode manufacturers, such as German chemicals giant BASF , to reduce their reliance on scarce metals and protect against rising and volatile prices, Ma said. Global automakers too, are jumping on the EV battery repurposing bandwagon. Renault , BMW , Daimler and Volvo are among the bank's top picks in this space. All are rated outperform by its analysts. The rise of ESG investing Bernstein noted that ESG equity funds have seen cumulative inflows of over $523 billion since 2015, with inflows of $405 billion since the beginning of 2020, highlighting the sector's rapid pace of growth. Looking beyond electric vehicles, Bernstein noted a focus from ESG investors on fashion. Luxury goods companies are looking to reduce the environmental footprint of their products, and Moncler , Prada , LVMH , and Kering are among Bernstein's top picks in the sector. Meanwhile, some "sin stocks" related to alcohol, tobacco, and gambling — typically excluded from ESG strategies — have also found their way into portfolios. The bank said that Hong Kong-listed Wuliangye and Budweiser APAC are among its top picks in the alcoholic beverages sector, while its list of gaming stocks includes Galaxy Entertainment , Genting Singapore , Las Vegas Sands , MGM Resorts and Wynn Resorts .

Electric vehicles have been in focus amid the green transition.

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