Despite the bearish reports we’ve had on Tesla Motors this week, the stock is moving higher today on the back of a report from Goldman Sachs which highlighted not only Tesla but other low carbon stocks. The firm named Tesla as one of its top picks in the area of green energy, which is in focus this week in Paris at the Global Climate Summit.
Shares of Tesla climbed by as much as 3.02% to $237.32 per share during afternoon trading hours today.
Tightening carbon regulations to boost Tesla stock
Goldman Sachs analysts highlighted four main areas in what they call “the carbon economy.” They are solar, wind, LEDs, and hybrids and electric vehicles. This week’s carbon summit in Paris will likely have a broad-based effect as lawmakers and regulators consider tightening restrictions on carbon production. Tesla is a direct beneficiary of what the Goldman team terms “grid connected vehicles.”
Recently, Bruce Greenwald carried out a virtual Fireside Chat with Li Lu, the founder and chairman of Himalaya Capital. Greenwald and Lu covered multiple topics during the discussion, addressing everything from the value investor's approach to appraising businesses and what he had learned from his great friend Charlie Munger. The duo also discussed China's economy Read More
They note the continued tightening of restrictions on carbon emissions from vehicles has been driving and will continue to drive innovation in the space.
As regulators increase pressure on automakers, it will force them to invest more in low emission technology. Cutting costs is an important part of developing these costs, and the Goldman team expects Tesla’s gigafactory to lead the way in cost reductions by slashing the price of electric vehicle batteries.
EVs, hybrids growing especially fast
They said the hybrid and electric vehicle category is growing especially rapidly compared to the other three areas of focus, although the consumer base that has adopted these vehicles remains relatively small. In the next ten years, they think sales of hybrid and electric vehicles will see a compound annual growth rate of 26%, thus expanding these vehicles’ share of the market from the measly 3% it is today to 22% by 2025. That would mean there would be nearly 25 million grid connected vehicles on the world’s streets.
Of course hybrid vehicles are expected to make up most of the sales, which doesn’t benefit Tesla at all because its vehicles are all-electric. However, the Goldman team still sees a significant benefit to Tesla as they expect about 8 million of the vehicles on the road to be either all-electric or at the very least plug-in hybrid electrics (rather than hybrid cars that don’t plug in at all), amounting to a 37% compound annual growth rate.
Low carbon stocks seeing extreme volatility
The Goldman Sachs team noted that investing in low carbon stocks is a challenge right now, particularly in the area of solar as solar stocks. They say solar technology is outpacing expectations in both cost reductions and speed of deployment, but despite this, solar stocks have been highly volatile with most trading much lower than the highs they witnessed in 2008 and 2011. And although the solar industry is the clearest example of this challenge, the analysts say this is going on in all four of the low carbon sectors they highlight.
Here’s a look at Goldman’s full list of top low carbon stocks:
Charts and graphs in this article are courtesy Goldman Sachs.