High risk, but high reward in Tesla and these other 'green' stocks, says Goldman Sachs

Reuters

Tesla and a few other clean-energy stocks are top picks at Goldman Sachs.

Electric-car maker Tesla Motors Inc. is a Goldman Sachs top stock pick in green energy, a sector in the spotlight this week as climate-change talks begin and the world’s wealthiest people pledge to invest in clean technologies.

Electric and hybrid cars, LED light bulbs, and solar and wind power are reshaping global industries and presenting investors with a new opportunity, the Goldman analysts said in a note Monday. The market is worth $600 billion, the investment bank said.

Investing in such industries will be a “high risk/high reward” proposition, but staying out of the field entirely is “increasingly risky” for investors, the Goldman analysts said. Companies that made Goldman’s list enjoy competitive advantages and are geographically diversified, they said.

The note was published as world leaders gathered in Paris to discuss climate change, and as dozens of the world’s most powerful people — including Microsoft Corp. MSFT, +0.78%  co-founder Bill Gates, Alibaba Group BABA, +3.32%  Chairman Jack Ma, financier George Soros, Facebook Inc. FB, -1.15%  co-founder and Chief Executive Zuckerberg, and Amazon.com Inc. AMZN, -1.26%  founder and Chief Executive Jeff Bezos — have pledged to invest billions of dollars in clean-energy research.

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Tesla TSLA, -0.58%  battery power packs “are key to Tesla’s growth,” the Goldman analysts said. The electric-car maker has halved the unit cost of its packs, with costs expected to drop further to about $150 a kilowatt/hour once Tesla’s “gigafactory” is fully running.

“In contrast, Tesla’s competitors use (lithium ion) batteries that are expected to cost $250/kWh in 2020,” Goldman said. Tesla expects its battery factory, under construction outside Reno, Nev., to begin cell production in 2017.

Semiconductor company SolarEdge Technologies Inc. SEDG, +2.88% , which makes inverters that improve the efficiency of solar panels, has doubled its volume year-on-year, and Goldman expects it to remain on this path. Along with gaining more market share, SolarEdge is also diversifying customer base, adding more customers outside the U.S.

Among wind-power turbine makers, Goldman highlighted Vestas Wind Systems VWS, +1.41%  , the leading player in the sector, and a “key beneficiary of strong volume growth.”

Specialty chemicals producer Albermale Corp. ALB, +0.85%  has both access to raw materials and the technology needed to turn out value-added battery-grade materials, while LED lighting maker Acuity Brands Inc. AYI, -0.31% is likely to benefit from emerging Internet of Things applications where LED lights command higher prices and margins, according to Goldman.

Solar and wind power are a $200 billion market, the bank’s analysts said. They projected sales of electric and hybrid vehicles to grow to $88 billion by 2020 and to $244 billion by 2025, from $12 billion in 2015.

It’s no coincidence that green cars, power and lighting are at the forefront of a low-carbon economy, the team noted. Power generation and transportation account for more than half of energy-related carbon-dioxide emissions, and lighting consumes 15% to 20% of electricity.

In contrast, other low-carbon technologies, such as nuclear and hydro-power generation, biofuels, and fuel-cell vehicles, either lack the scale or the momentum to drive change, Goldman said.

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High risk, but high reward in Tesla and these other "green" stocks, says Goldman Sachs