About ETF
Exchange-traded funds (or ETFs) are a sort of broad-based investment: they invest in a group of firms that have a common theme or issue – in this case, electric vehicles.
ETFs allow you to diversify your investment among numerous firms, generally those with a demonstrated track record of generating positive returns.
ETFs can be purchased directly or via a fund manager who maintains track of which funds you own.
Single-stock investments have a slew of disadvantages: when a single firm performs poorly, an entire investment group suffers.
However, investing in an ETF eliminates this by diversifying the investment.
ETFs have a greater chance of success.
ETF investing is similar to shooting a target from a distance: with a spread-out shot, you have a better chance of hitting the intended goal.
How do exchange-traded funds work?
ETFs do not invest an investor's money in a single company; rather, the investment is dispersed among multiple successful firms with similar business models. In this example, the funds will be focused on electric vehicles — but there are other different ETF varieties.
Investments in ETFs can be made through a fund manager, but they are also available to the general public.
This was not the case decades ago, however investing in an ETF is a very simple and quick procedure now.
ETFs are one of the simplest methods to invest in the present.
While investing in equities may quickly become difficult, investing in an ETF is as simple as selecting an amount and a fund; from there, the specific stocks to which your money will be allocated are already picked by the fund.
That is only a sampling of the reasons ETFs have become popular investments at the moment.
What’s An EV ETF?
An EV ETF is a subset of an exchange-traded fund that invests exclusively in firms involved in the electric vehicle industry.
These exchange-traded funds invest in businesses that acquire, sell, rent, or manufacture electric vehicles or their components.
Consider someone who wants to invest in a firm such as Tesla but also in comparable companies that are not Tesla: in this case, they will rely on an Electric Vehicle ETF – or EV fund – to connect them to the finest companies.
The best electric car exchange-traded fund (ETF) can offer great returns with little risk, and as an investor, you may feel good about helping the environment and future.
How Do EV ETFs work?
Electric-vehicle exchange-traded funds invest in a variety of firms involved in the electric vehicle sector, including automakers, battery manufacturers, and technology companies. They trade similarly to stocks on an exchange, and you may purchase one or more shares of these ETFs.
Why Invest In Electric Vehicles ETFs?
Due to the meteoric rise in electric vehicle sales, electric vehicle stocks have outperformed the larger stock market. Tax incentives for EV owners, higher emissions requirements, government subsidies, charging station expansions, more efficient battery technology, and a transition away from fossil fuels will all help to drive the adoption of more ecologically sustainable modes of transportation.
Analysts originally questioned Tesla – and the EV sector in general – but the business has grown at an exponential rate, both in terms of car sales and share price. Rivian, a newcomer, is seeing comparable development. ARK Invest forecasts that electric vehicle sales will reach 37 million by 2024, as battery technology becomes more affordable and efficient, making electric vehicles more accessible. They state: "According to Wright's Law, battery cell costs will decrease by 18% for every cumulative doubling of units produced... These cost reductions are important for EVs to achieve price parity with gasoline-powered vehicles, as the battery is the most expensive component of an EV."
Bloomberg has also compiled some outstanding EV forecast statistics here. Several nuggets:
"EVs already account for 10% of worldwide passenger car sales, growing to 28% in 2030 and 58% in 2040."
"Price parity between EVs and internal combustion vehicles is expected to be achieved in the majority of categories by the mid-2020s."
"Nearly 60% of families in the United States own two or more automobiles — and many have the capacity to install home charging – making them ideal adopters as EV economics, range, and recharging choices improve."
In the United States, the Biden Administration has also declared openly its intention to install 550,000 EV charging stations over the next decade, as well as an all-electric federal vehicle fleet. In November 2021, the United States enacted an infrastructure plan that included significant tax subsidies for EV customers.
Electric vehicle ETFs minimize the need for investors to study and select winners from the plethora of EV equities available. Several are start-ups. Others are well-known automobile manufacturers devoted to electrifying their product lineup. Thematic electric vehicle exchange-traded funds give wide exposure to the segment, allowing investors to profit from the success of any of the category's emerging stars, like Tesla, as well as the technology that goes into these vehicles. We'll examine the finest electric vehicle exchange-traded funds (ETFs) below.
Market share of electric vehicles is expected to increase
Electric vehicle market share has increased over time in the United States, Europe, and China, and analysts predict this trend to continue.
Invest in a variety of industries related to electric vehicles
Investors interested in electric vehicles have a variety of investment options, including funds devoted only to battery manufacture and those devoted exclusively to automobile technology. These funds invest in a variety of businesses, ensuring diversification.
Cons of Investing in EV ETFs
Electric-vehicle sales may not turn a profit
Historically, electric car sales have been unprofitable, with corporations developing and selling them with the anticipation of future profitability. If these anticipated profits do not materialize, investment in electric vehicles may be unsuccessful.
No ETF focuses solely on carmakers
There are relatively few ETFs dedicated to electric vehicles, and investors seeking to invest directly in manufacturers are out of luck. You'll need to select a fund that invests in more technology or in a greater proportion of the supply chain components of electric vehicles.
The Risks Of EV ETFs
While EV usage will continue to expand, several new EV manufacturers have struggled. Beyond Tesla, upstarts continue to be unprofitable and have manufacturing hurdles. Lordstown Motors (RIDE), Canoo (GOEV), and Nikola (NKLA) all faced charges of fraud. Despite this, prices continue to soar. Certain businesses have made big promises to investors, but can they keep them? It is still to be determined:
Subsidies
In Europe, China, and the United States, electric vehicle purchasers continue to rely on government subsidies. If these incentives are decreased or eliminated entirely, the stocks of electric vehicle manufacturers may suffer in the short term.
Competition
The electric vehicle industry is fiercely competitive, particularly in China. Due to the fact that EVs are easier to develop and build than conventional vehicles, both startups and established manufacturers are entering the race.
Rising battery costs
Prices of lithium-ion battery packs decreased by 89% between 2010 and 2020, however growing prices of battery elements such as lithium are expected to reverse this trend in 2022. This may be beneficial for green metals stocks, but not so much for electric vehicle and battery manufacturers. Fortunately, some of the ETFs on this list invest in metals and mining firms as well.
DISCLAIMER: THIS IS NOT INVESTMENT ADVICE. The content is provided for informative purposes only; it should not be construed as investment advice.
An ETF is diverse: rather than investing in a single, possibly dangerous firm, an ETF invests in a collection of successful enterprises.
Exchange-traded funds are also preferred because they enable investors to focus their attention on a single subject. For instance, there are ETFs devoted only to environmentally conscious investors — and then there are ETFs devoted to other niches, such as investing in electric vehicles.
The gasoline-powered automotive era is drawing to a close. Several state and federal governments are proposing outright or effective prohibitions of gasoline-powered automobiles. California, for example, requires that all new passenger vehicles be zero-emission by 2035. Meanwhile, the European Union has recommended cutting carbon dioxide emissions from new vehicles by 55% by 2030 and 100% by 2035.
If you want to profit from this sea shift in the transportation industry without having to pick individual EV stocks, investing in an EV-focused exchange-traded fund is a wise move. Investors may pick from a variety of electric vehicle exchange-traded funds, all of which have the potential to appreciate significantly in the years and decades ahead as the shift to EVs advances.
Best EV ETFs You Should Buy
Global X Autonomous & Electric Vehicles ETF (DRIV)
DRIV, another Global X passively managed fund, is a direct bet on the electric vehicle industry. This is one of the oldest EV ETFs available, which also accounts for its size. DRIV now manages $1.2 billion in assets and has an expense ratio of 0.68 percent. The fund is benchmarked against the Solactive Autonomous & Electric Vehicle Index, which includes firms that manufacture EVs, their components, or raw materials used in EV manufacturing. Alphabet Inc. (GOOGL), Apple Inc. (AAPL), Qualcomm Inc. (QCOM), Intel Corp. (INTC), and Nvidia Corp. (NVDA) comprise around 15% of DRIV's overall portfolio. Given the fund's performance thus far this year, it may be an excellent moment to purchase the dip if you're taking the long view.
SPDR S&P Kensho Smart Mobility ETF
This ETF invests in publicly traded firms in the smart transportation industry, which includes electric vehicles, autonomous vehicles, transportation systems, and drones. The product seeks to replicate the performance of the S&P Kensho Smart Transportation Index.
EVs represent only a portion of the fund's investment strategy. Automobile manufacturers account for around 20% of this ETF's assets. Tesla and Chinese EV producer Li Auto are two of the company's largest interests (NASDAQ:LI).
The industries that support electric vehicles are well-represented. Another 16% of the fund's assets are invested in auto parts and equipment makers, and around 8% of the fund's assets are placed in manufacturers of construction machines and heavy trucks. Semiconductor businesses account for around 13% of the ETF's holdings.
Apart from automakers, the corporation's top interests include automotive technology company Veoneer (NYSE:VNE) and materials company Aspen Aerogels (NYSE:ASPN). The ETF charges an expense ratio of 0.45% and manages around $200 million in assets.
LIT – Global X Lithium & Battery Tech ETF
Another fund managed by Global X is LIT, which focuses on lithium miners and battery manufacturers. This is essentially a wide bet on the lithium sector, with electric vehicles as the sole use.
LIT, which debuted in 2010, is the most popular fund on this list, with approximately $3 billion in assets. Additionally, it is the most costly, at 0.75 percent.
LIT's holdings are primarily small, overseas firms that you're unlikely to have heard of, however it is exposed to the United States at 20% and Tesla is among its top ten holdings. Panasonic, LG, and Samsung round out the top ten holdings. Indeed, just four companies account for more than a quarter of LIT's total assets.
Due to the fact that LIT is a play on the lithium business, its performance is not significantly associated with those of the EV-focused ETFs mentioned previously.
KraneShares Electric Vehicles and Future Mobility ETF (KARS)
Investors interested in a more concentrated exposure to electric vehicles may choose to investigate the KraneShares Electric Vehicles & Future Mobility ETF (KARS). This fund invests in manufacturers of electric vehicles and suppliers of vehicle components. Additionally, it owns stakes in companies involved in the future of mobility, such as self-driving vehicles and fuel cell production.
With around $326 million in assets under management, the fund is less liquid than some of the other ETFs on our list, which have AUMs in the billions. However, it has returned 40% over the last three years (as of Oct. 31, 2021) and has a 0.70 percent cost ratio ($7 for every $1,000 invested), making it an attractive option for investors seeking a more concentrated emphasis on automakers. Tesla, General Motors, and Ford are just a few of the household or well-known corporations in its top ten holdings.
Simplify Volt RoboCar Disruption and Tech ETF (VCAR)
The Simplify Volt RoboCar Disruption and Technology ETF (VCAR) is a robust exchange-traded fund that is heavily weighted toward the future of transportation, namely autonomous vehicle technology.
This ETF includes large businesses such as Netflix and Intel - and investors will notice that it has a reputation for acquiring "big players."
Companies involved in progressive, future technology may be found here: the ETF's concentration, of course, is on electric vehicles and future sustainable transportation technologies such as driverless vehicles.
VCAR is a younger company than some (such as DRIV), but it is worth investigating for its formidable holding firms.
iShares Self-Driving EV and Tech ETF
The iShares IDRV ETF, another index fund, offers a lower expense ratio than some of the other EV ETFs on our list. It is tracking the NYSE FactSet Global Autonomous Driving and Electric Vehicle Index in particular. Due to the fund's stated purpose of investing in self-driving technology, the equities it holds include a slew of technology businesses.
IDRV invests its $430 million in assets mostly in firms such as AMD, Nvidia, and Apple. Tesla, of course, is included. However, it is now the third-largest holding. Additionally, with just under 100 holdings, this fund is more diverse than some of the others on the list.
Capital Link Global Green Energy Transport and Technology Leaders ETF (EKAR)
Capital Link NextGen Vehicles & Technology ETF (EKAR) is a tiny fund with assets of around $12 million. It invests in equities of firms involved in alternative energy or self-driving vehicles, such as automakers, battery manufacturers, suppliers, and semiconductor and software companies. Relevant stocks are selected by scanning enormous amounts of data with a natural language processing (NLP) technology.
In February 2022, EKAR controlled around 70 equities, the majority of which were located in the United States, Japan, and Germany. The top 10 contained a few surprising selections. First Quantum Minerals, a copper miner, and Sumitomo Metal Mining were the two largest holdings.
With a cost ratio of 0.95 percent, this little ETF is just too pricey to be on your radar.
When Should You Buy EV ETFs?
It may be prudent to purchase an electric-vehicle ETF when you anticipate it will appreciate in value and have the capacity to keep it for the long term, allowing you to weather turbulence. Before investing, ensure that the security you're considering is compatible with your investment plan and financial objectives. Conduct research on the fund, analyze its performance, and learn about potential market developments that might affect this investment.
The Balance does not offer tax, financial, or investment services or advice. The material is being provided without regard for the investor's investment objectives, risk tolerance, or financial situation, and may not be suitable for all investors. Previous performance does not guarantee future results. Investing entails risk, including the potential for principal loss.
The Bottom Line
A diversified portfolio is critical to long-term success in today's stock market. And these EV ETFs may be deserving of a place in your portfolio. However, you do not want to go overboard. If the whole electric car industry succumbs to the next best thing, you may find yourself owning a lot of nothing.
Real-time News
