Morgan Stanley
  • Research
  • February 10, 2022

Plugging into the Battery Economy

The global battery economy is shifting into high gear thanks to rapid EV adoption, improving technology and a new urgency for governments and corporates to decarbonise. A look at key takeaways for investors on this emerging theme.

When the automobile industry began mass producing cars in the late 1940s, it sparked a booming oil economy encompassing everything from massive refineries to the corner gas station. More than half a century later, the automobile is once again reshaping established supply chains and creating a new industrial order—only this one is built on the high-density lithium-ion batteries that power Electric Vehicles (EVs).

Most investors understand that increasing demand for EVs is driving growth for battery makers and related industries. What the market may not fully appreciate, however, is the speed, breadth and complexity of the burgeoning global battery economy.

Now, a combination of factors, including a new urgency for government and corporates to decarbonise and surging investments by auto and battery manufacturers, has shifted the battery market into high gear.

“The battery economy could do for this century what oil did for the last,” says Adam Jonas, who heads Morgan Stanley's Global Auto & Shared Mobility research. In response, Jonas and more than 25 of his equity analyst colleagues have created a new Global Battery team to map the entire value chain of battery electric vehicles (BEVs). In a recent collaborative Bluepaper, the Research team identified 71 companies under their coverage that are best positioned for the exponential growth in the EV battery economy.

More than a single industry, batteries are a key investment theme with a total addressable market that could surpass $525 billion by 2040. “This story involves multiple sectors across cell manufacturing, specialty chemicals mining, equipment, components, machinery, packaging, and automakers,” Jonas adds. As with any secular theme, the story will continue to evolve, but here are key things investors should know.

The Global EV Battery Market is Poised to Reach $525 billion by 2040

Source: Morgan Stanley Research. Note: Excludes ESS batteries

Battery Market Has Shifted into High Gear

Battery technology has been around for more than two centuries—but the last decade has marked a major turning point for batteries spurred in no small part by Tesla.

The company opened doors for increased EV adoption, which in turn led to more investments in battery technology, and ultimately cheaper, better batteries. In fact, costs have come a long way since 2010, when battery prices were $1,100/kWh, representing a 90% drop over ten years to about $110/kWh today.

Meanwhile, post-Covid climate polices and environmental, social, and governance (ESG) mandates have accelerated adoption. “The pandemic accelerated the development of the battery economy by at least five, if not 10 years,” says Shawn Kim, who heads the Asia Technology research team at Morgan Stanley. The amount of capital investment in batteries is now 10 to 20 times higher than it was pre-Covid. 

Battery Trend May Span Decades

Major secular themes rarely follow a linear path, and batteries are no different. “We think it's helpful to think in terms of stages of development or 'epochs' as the story of the battery economy unfolds,” says Stephen Byrd, Head of U.S. Power & Utilities and Clean Energy.

If the last decade was about proof of concept, the current epoch might be defined as the “Wild West” of batteries, during which time surging EV penetration leads to a rapid period of project financing and joint ventures in the battery space—and raises the risk of excess capacity globally. This epoch could also bring what analysts call the “balkanisation” of the battery industry as governments and regions establish their own secure supplies of batteries in the name of national energy security.

The next epoch—beginning around 2030—could be marked by significant consolidation, as well as higher levels of standardisation and commoditisation. During this period, we also expect to see well-capitalised new tech players challenging today’s leaders.

Beyond that, “we believe the automobile business model itself is fundamentally transformed into a transport utility where a combination of cheap batteries, renewable energy, and autonomy drive the incremental cost of the vehicle mile traveled to near zero,” says Jonas.

While the auto industry is carrying the necessary burden of revolutionising the industry, batteries will likely be more widely applied to sectors of the future, including the internet of things (IoT), industrial autonomy, robotics, or defense.  

Investors Should Beware Blind Spots

Drawing on experience investing in other emerging technologies, Morgan Stanley analysts outlined a roadmap for investors navigating new adoption cycles. Early in the cycle, enablers of a new technology tend to lead the way. Subsequently, value creation shifts to the infrastructure and device makers with higher penetration. Toward the end of the cycle, opportunities shift to software and services companies that are able to capitalise on the growth of EVs.

Still, there are many unknowns and risks to navigate along the way. “The battery industry is highly complex with dozens of mini self-reinforcing and some self-correcting supply/demand curves to take into consideration,” says Jonas. Indeed, many of the same factors that are driving the bull case for EV penetration could ultimately pose risks for today’s battery incumbents—as was the case for solar, LED and other emerging industries.

The Morgan Stanley Global Battery team has identified four potential blind spots, including excess investment, the “balkanisation” of the battery business, OEM vertical integration, and obsolescence risk on the way to cell and manufacturing breakthroughs.

In fact, lithium-ion batteries could ultimately be replaced by new technologies. The battery of the future may not even look like a cube or a cylinder. It could look like an airplane wing, car body, or phone case with a thin sheet of woven glass that separates the two electrodes.

No doubt, the global battery market will continue to evolve, which is all the more reason for investors to plug into this secular theme. 


For more Morgan Stanley Research on electrification, ask your Morgan Stanley representative or Financial Advisor for the full report, “The New Oil: Investment Implications of the Global Battery Economy” (Nov. 15, 2021). Plus, more Ideas from Morgan Stanley's thought leaders.