Taiwanese EV/battery testing firm Chroma Ate Inc. (TPE:2360) used to make PEMs for Tesla Motors Inc (NASDAQ:TSLA)’s Roadster. It generated about NT$200 million in annual revenues for Chroma Ate Inc. (TPE:2360) between 2009 and 2011. This, along with the company’s LED and solar business played a key role in quadrupling Chroma Ate Inc. (TPE:2360)’s stock price between 2009 and 2011.

Tesla

Tesla makes in-house PEMs for Model S

However, Tesla Motors Inc (NASDAQ:TSLA) stopped making Roadster last year. It was a big blow to Chroma Ate Inc. (TPE:2360), which had to stop manufacturing PEMs for the Elon Musk-led company. Now Tesla Motors makes PEMs in-house for its blockbuster electric vehicle Model S. That doesn’t mean Chroma Ate Inc. (TPE:2360) and Tesla Motors Inc (NASDAQ:TSLA) have parted ways. The Taiwanese company still supplies testing equipment for new EV models and certain replacement parts for Roadster, says Barclays analyst Sebastian Hou.

However, Barclays believes that there is little upside potential for Chroma Ate Inc. (TPE:2360) from Tesla. Tesla Motors Inc (NASDAQ:TSLA) shares have surged more than 250% this year so far, but that doesn’t mean it will benefit Chroma Ate Inc. (TPE:2360). The Taiwanese company will benefit only if it gets plenty of business from the American electric car maker. Chroma Ate Inc. (TPE:2360)’s sales to Tesla Motors Inc. are expected to generate only 1% of the company’s total revenues in 2013, down from 4-5% between 2009 and 2011.

Chroma to benefit from overall EV growth

Over the long term, Chroma Ate Inc. (TPE:2360) is likely to benefit from the overall EV market growth because the company is a leader in EV/battery testing. The optimistic guidance from Tesla Motors Inc (NASDAQ:TSLA), the launch of Bayerische Motoren Werke AG (FRA:BMW) (ETR:BMW) i3 and regulatory requirements indicate a healthy growth in EV industry.

Analysts say Tesla Motors Inc (NASDAQ:TSLA) can help boost Chroma Ate Inc. (TPE:2360)’s revenues if the American company ramps up its production capacity and start purchasing more testing equipment. Other electric vehicle makers like  Bayerische Motoren Werke AG (FRA:BMW) (ETR:BMW) could also generate an upside for the Taiwanese firm. BMW uses Chroma Ate Inc. (TPE:2360)’s testing equipment for the battery cell and power system of i3.

However, Barclays thinks that EV growth will remain gradual over the long term. Analysts expect Chroma Ate Inc. (TPE:2360) to generate NT$100-150 million from EV related sales this year, including sales to Tesla Motors Inc (NASDAQ:TSLA). Barclays has an Overweight rating on the stock with NT$80 price target.

Tesla Motors Inc (NASDAQ:TSLA) shares were up 2.35% to $134.84 at 3.07 PM EDT.