After a wave of electric vehicle startup SPACs, a Morgan Stanley banker predicts batteries will be the auto industry’s next obsession

• Public listings from electric vehicle startups have kept Wall Street busy over the past year.
• A Morgan Stanley banker thinks the auto industry will focus on key parts like batteries next.
• Automakers are already teaming up with top battery makers and investing in startups.

Electric vehicles have driven much of the automotive industry’s dealmaking over the past year, and that isn’t likely to change soon, Morgan Stanley’s global head of automotive and mobility technology told Insider. But over the next 12 months, Regina Savage predicts the industry will home in on partnerships, acquisitions, and investments tied to various elements of the EV supply chain, especially batteries.

An EV’s battery is its most expensive part, and one that may become harder to buy if suppliers can’t keep up with rising demand.

“With EVs, it’s all about the battery,” General Motors CEO Mary Barra said at the JPMorgan Global ESG Conference in March.

The supply chain disruptions of the COVID-19 pandemic made clear to automakers that they need to be smart about how they invest, Savage said. With governments pushing them to transition their fleets from gas-powered to electric models and analysts predicting soaring EV adoption in the coming decades, car companies have shifted more of their investment dollars to electrification.

In May, Ford increasedby more than 30% the amount of money it plans to spend on EVs by 2025. A month later, General Motors raised its planned investment in electric and self-driving vehicles for the first half of this decade by 75%. “The pandemic sort of forced a decision moment where people had to take a very hard look at their priorities,” Savage said.

The looming shift from internal-combustion engines to electric motors has prompted automakers to reconsider which components are most important to control, Savage said. Where they used to prioritize engines, they’re now more focused on batteries and semiconductors.

Batteries have been a particular point of emphasis. A projected increase in global demand could put automakers at risk of not being able to secure enough cells, potentially creating a crisis similar to the current semiconductor shortage, which has slowed down production for much of the industry.

That threat has pushed automakers to build battery factories through joint ventures with industry leaders like LG Chem and Panasonic, invest in unproven startups, and even design their own cells. Meanwhile, the central role batteries will play in the auto industry’s future has helped QuantumScape, Solid Power, and other newcomers capture the attention of special-purpose acquisition companies, or SPACs, which have struck deals to take them public.

With automakers seeking advice on how to transform their business models and startups flocking to the SPAC and IPO markets, investment bankers like Savage will have plenty to keep them busy.