URI - China risk is rising in the electric vehicle sector - watch these stocks for upside

Morgan Stanley warned that Tesla ( NASDAQ: TSLA ) faces some risk if tension between the U.S. and China over Taiwan were to ratchet up even higher.

Overall, China is noted to supply 50% of global battery shipment and 50% to 75% of global battery materials including the cathode, anode, separator and electrolyte. For Tesla ( TSLA ), the ramp up of production in Berlin and Austin is a clear positive, but the automaker is seen as still having more exposure to the domestic China market than any other major automaker.

"House Speaker Pelosi’s visit to Taipei casts the global battery race into a new light. The race for global EV battery dominance goes hand-in-hand with geopolitics and national security. Tesla is highly exposed to both the risk and the opportunity," updated analyst Adam Jonas.

However, there is also an opportunity for the Austin-based EV powerhouse. Looking further down the road, Jonas and team believe Tesla's ( TSLA ) role in building out U.S. and Western European renewable energy infrastructure is underappreciated by investors. Tesla is called a renewable energy on-shore infrastructure powerhouse that should be part of the valuation matrix for long-term investors.

There is also the potential that other electric vehicle players and suppliers across other sectors could benefit if the global battery capex cycle accelerates with the West decoupling from China EV battery connections.

United Rentals ( URI ) is seen as a potential beneficiary of infrastructure capex for energy transition with exposure to U.S. non-res at 45%.

Freyr Battery ( FREY ) is called a "land grab" type of play that highlights the trend towards national champions due to its favorable relationship with the Norwegian government.

Wolfspeed ( WOLF ) is singled out due to its strong market share in SiC water supply and early SiC device auto design win pipeline. Jonas and team see those as reasons to believe the company will play a pivotal role in enabling the next wave of innovation in EV battery performance.

Fluence Energy ( FLNC ) is described as a leading utility-scale energy storage solutions provider in only the early stages of adoption. FLNC is at the outset of a +10-year period of rapid 30% annual growth that could push even higher if the China decoupling thesis plays out.

In the auto manufacturing sector, Rivian Automotive ( RIVN ) is seen as a well capitalized pure startup OEM that can leverage its strategic relationship with Amazon to help it build scale alongside software and services competencies for the consumer business.

Meanwhile, Rockwell Automation ( ROK ) is noted to be is a North American discrete automation name with significant share in EV players that could potentially be a battery capex winner on the automation side.

See Seeking Alpha Quant Ratings across the auto sector.

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