The transportation industry is in the midst of a massive transformation that could potentially generate trillions of dollars for the global economy. Central to this shift are electric vehicles (EVs), whose products are designed to be more energy efficient and connected than traditional cars.
The International Energy Agency (IEA) estimates that global consumers spent $425 billion in 2023, a 50 percent increase from 2023. While this figure represents only about 14 percent of total vehicle sales, the potential for EV market expansion is compelling.
So far, almost all major automakers have announced plans to increase the availability of electric vehicles, with some, such as Jaguar and Volvo, planning to phase out gasoline vehicles completely within the next decade. Similarly, more than twenty countries have announced plans to eliminate sales of gasoline vehicles over the next ten to thirty years as part of their sustainability commitments.
All these initiatives could propel the EV industry to new heights.
Why invest in the EV industry?
The IEA predicts that there will be 145 million electric vehicles on the road in the next decade, compared to just 10 million today.
To respond to increased demand, most of the largest automakers have pledged to meet electrification targets by 2030 by reconfiguring their production lines to build more electric cars.
Ford, for example, says it plans to invest $30 billion in electrification efforts by 2025, promising that 100 percent of its passenger vehicles in Europe will be zero-emission by mid-2026 and fully electric by 2030. The company predicts that 40 percent of global sales will consist of fully electric vehicles.
Similarly, General Motors, the largest US automaker, has announced plans to invest $35 billion in electric and autonomous vehicles over the next five years, and to offer 30 all-electric models worldwide by 2025. Furthermore, the company plans to be carbon neutral in its products. and activities by 2040.
But it’s not just commercial vehicles. Truck makers such as Daimler, Renault, Scania, MAN and Volvo are also pursuing zero-emission driving by expanding the range of available EV models, from long-haul trucks to garbage trucks.
As the availability of electric vehicles increases and economies of scale emerge – potentially driving down production and battery costs – S&P Global predicts that by 2030, more than one in four new passenger cars sold will be an electric vehicle.
However, consumers have been slower to embrace electric vehicles than some expected, partly due to concerns about access to charging stations and available range on a single charge. Some automakers have been forced to reset their EV targets.
Towards a sustainable future
As part of a collective push to reduce our environmental footprint, policymakers in the United States, China, the European Union and other regions around the world are implementing mandatory targets and policies in an effort to reduce carbon emissions in the transportation sector .
In the US, for example, the Biden administration has issued a new rule requiring the majority of new passenger car and light truck sales by 2032 to be electric vehicles or hybrids.
According to the Environmental Protection Agency (EPA), transportation is responsible for approximately 29 percent of U.S. greenhouse gas emissions. The EPA estimates that removing one gas-powered vehicle from the road could prevent approximately 4.6 tons of carbon dioxide from being released into the environment each year. year.
Top Electric Vehicle ETFs
Like other thematic investment types – such as blockchain technology, cybersecurity and real estate – one simple way for individual investors to gain exposure to EVs is through exchange-traded funds (ETFs).
Essentially, an electric vehicle ETF contains a basket of publicly traded stocks in the sector. These companies can directly produce electric vehicles and car parts or provide services that support the evolution of electric cars.
This niche area of the ETF market remains relatively quiet, with only a handful of players in the space. Before investing, consider reading the fund’s prospectus to better understand the investment strategy, investments and expenses.
(The information below applies as of April 1, 2024.)
iShares Self-Driving EV and Tech ETF (IDRV)
The fund invests in global companies that produce electric vehicles, autonomous cars, batteries and other products and services that support the industry.
- Publisher of the fund: Black rock
- Year-to-date return: -12.4 percent
- Assets under management: $257.7 million
- Cost ratio: 0.47 percent
- 2023 achievements: 7.9 percent
Global X Lithium & Battery Tech ETF (LIT)
The fund invests in global companies involved in lithium mining and exploration and lithium battery production.
- Publisher of the fund: Mirae Asset Global Investments
- Year-to-date return: -10.5 percent
- Assets under management: $1.7 billion
- Cost ratio: 0.75 percent
- 2023 achievements: -12.2 percent
Global X Autonomous & Electric Vehicles ETF (DRIV)
The fund invests in companies involved in the development of autonomous vehicles, EVs and EV components and materials. It aims to match the price and yield performance of the Solactive Autonomous & Electric Vehicles Index.
- Publisher of the fund: Mirae Asset Global Investments
- Year-to-date return: 0.24 percent
- Assets under management: $605.8 million
- Cost ratio: 0.68 percent
- 2023 achievements: 26.1 percent
SPDR S&P Kensho Smart Mobility ETF (HAIL)
The fund aims to generate investment results that track the S&P Kensho Smart Transportation Index. Companies in the index are involved in creating products and services related to smart transportation, and the fund’s holdings include companies such as Nvidia, Lyft, Allison Transmission Holdings and General Motors.
- Publisher of the fund: State Street Global Advisors
- Year-to-date return: -4.1 percent
- Assets under management: $37.5 million
- Cost ratio: 0.45 percent
- 2023 achievements: 9.7 percent
Amplify Lithium & Battery Tech ETF (BATT)
The fund invests in companies that generate significant revenue from the development, production and use of lithium battery technology, including electric vehicles. It aims to generate investment results generally in line with the EQM Lithium & Battery Technology Index. Top holdings include Tesla, BYD Co. and Glencore.
- Publisher of the fund: Increase investments
- Year-to-date return: -10.5 percent
- Assets under management: $90.0 million
- Cost ratio: 0.59 percent
- 2023 achievements: -7.1 percent
Risks of Electric Vehicle ETFs
According to the IEA, the growth and impact of the EV industry is highly dependent on how successful policymakers are in developing a comprehensive framework that supports the industry.
For example, in addition to the adoption of electric cars, decarbonizing electricity producers and building a global charging network are fundamental. But in addition to these efforts, moving to sustainable business practices, such as efficient waste management, will also be crucial for long-term success.
From electric vehicle makers like Tesla (TSLA) and NIO (NIO), to semiconductor makers like NVIDIA (NVDA) and Intel (INTC), to cloud providers like Microsoft (MSFT) and Amazon (AMZN), many of these names will be essential for ensuring vehicle safety, intelligence and efficiency in the emerging space.
Investors should also pay close attention to the valuations of EV-related stocks, which can easily come under pressure in such a hot sector. This is especially true for individual stocks, but can also apply to ETFs. While a diversified sector ETF can help protect you from increases in individual stock prices, it won’t protect you from a sector-wide decline if EV stock valuations fall.
Please note: Bank interest Brian Baker contributed to an update to this story.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
