Shares of legacy automakers and parts manufacturers will attract new investors as they transition toward electric vehicles and green technologies, according to Goldman Sachs. Environmental, social and governance (ESG) funds have thus far mostly shunned such companies in favor of new electric automakers, according to Goldman — but it’s a trend the Wall Street bank expects to reverse this year. This means that as the traditional auto companies grow their share of income from new carbon-neutral technologies, they’re likely to be gradually reclassified and included in ESG funds. The investment bank said the pace of transition toward net zero has been boosted by the Inflation Reduction Act passed by the Biden administration last year. The tax incentives available under the law make manufacturing in the United States more profitable than it would have been. “Recent commentary from corporates supports our bullish view that the Inflation Reduction Act will be a catalyst for acceleration in Green Capex and benefit stocks through the supply chain,” said Goldman Sachs analysts in a note to clients on Jan. 3. The bank identified the following buy-rated stocks in the electric vehicles sector it expects to benefit from the trend: According to Goldman, U.S.-listed Norweigian battery maker Freyr has the biggest upside potential. The company has previously announced plans to expand into the United States to take advantage of the benefits of the IRA. As a result, the bank expects the company’s stock to rise by 116% to $19 over the next 12 months. Also among Goldman’s picks are Lear Corp and Visteon . The two companies manufacture electrical products such as “infotainment” systems for vehicles of all types. The Wall Street bank believes such stocks will begin attracting ESG investors as an increasing proportion of their parts are used in electric vehicles. Shares of Visteon rose by 17% last year, and Goldman expects the stock to rise a further 15% to $160 in the next 12 months. VC 1Y line The chart shows shares of Visteon rose by 17% in 2022 The investment bank also said legacy automakers such as General Motors would see growing interest from ESG investors as they manufacture an increasing number of electric vehicles. Last year, Detroit-based General Motors said it expects profits from electric vehicles to be in-line with cars and trucks with traditional engines by 2025 — years earlier than expected. The company also reclaimed its title as America’s top automaker after a 2.5% jump in sales last year. Goldman Sachs expects GM’s stock to rise by 20% over the next 12 months and reverse some of last’s year 44% decline. According to Goldman, companies that manufacture battery sensors and vehicle connectivity such as TE Connectivity , Sensata Technologies and Aptiv are also expected to see growing interest from investors. — CNBC’s Michael Bloom contributed to this report.
