Top 4 EV ETFs: Investing in the Electric Vehicles With Minimum Risk

May 11, 2022 03:26 PM ET
Top 4 EV ETFs: Investing in the Electric Vehicles With Minimum Risk

Electric vehicles are changing the automobile industry as their performance and reliability improvements. Indeed, the EV industry has a compounded annual growth rate (CAGR) of 24.5% and is expected to reach over $980 billion in 2028.

EVs have become very successful such that Tesla has a bigger market valuation than all the other legacy automakers like Ford, General Motors, and Volkswagen combined. This is despite the fact that the company’s revenue, profit, and unit sales are significantly lower than that of these companies. In this article, we will look at the best EV ETFs to buy for long-term investors.

Why EVs are becoming popular

There are several reasons why EV companies are getting more popular by the day. First, EVs have an excellent performance than combustion engine vehicles. For example, Tesla Model S Plaid can move from 0-60 mph in just 2.1 seconds. This is in the same category as hypercars like Bugatti and Porsche 911. Other EVs have a great performance as well.

Second, unlike traditional EVs, newer models have an excellent range, which helps get rid of range anxiety. For example, Mercedes is building an EV car with a 1,000 km range, meaning that one can drive from San Francisco to Las Vegas on a single charge. Historically, range anxiety has been the biggest concern among EV users.

Third, EVs have become popular because of the hype surrounding Tesla and its Chief Executive, Elon Musk. Further, many governments have set goals about when they will start phasing out combustion engine vehicles. 

For example, China and the European Union will ban fossil fuel cars by 2035. Japan has also planned to phase out these vehicles in the mid-2030s. Therefore, investors believe that this transition will lead to more demand for electric vehicles. 

EV stocks performance

Electric Vehicle stocks have performed poorly in 2022 for a number of factors. For example, Rivian shares have plummeted from an all-time high of $112 to just $22. As a result, its total market cap has moved from more than $100 billion to just $22 billion. 

Similarly, Nio shares have declined from almost $60 in 2021 to the current $13.61. Tesla has not done well either, considering that the shares have plummeted from $1,271 to $795. The chart below shows the performance of the most prominent EV stocks.

Tesla, Nio, Xpeng, Canoo, and Lucid

There are several reasons why EV stocks have declined sharply in 2022. First, there are worries about the sector’s growth as competition heats up. Second, the ongoing supply shortage has made EVs more expensive than combustion engine cars. As a result, many people don’t have the resources needed to buy these vehicles. 

Additionally, many EV stocks were highly valued, which made it logical for their shares to drop in a high-interest rate environment. Fears of delisting in the US have made it difficult for many investors to invest in Chinese companies like Xpeng and Nio.

iShares Self-Driving EV Tech ETF (IDRV)

The iShares Self-Driving EV Tech is an ETF that aims to provide investment opportunities in emerging technologies in the EV and self-driving industries. In the past few months, the total assets in the fund have declined to about $417 million as most of its constituent stocks have plummeted. 

It has 128 companies and an average PE ratio of 12, making it cheaper than the broader market. The fund has a net expense ratio of about 0.47%, making it relatively affordable even though it is more expensive than most funds.

The biggest constituent in the fund is Apple. While the company is not manufacturing cars right now, there are rumors that it is building its EV. 

IDRV vs S&P 500

Other large constituents are Toyota, Intel, Alphabet, Tesla, and Qualcomm. The benefit of investing in this fund is that it gives you access to a diverse mix of companies in the industry.

KraneShares Electric Vehicles & Future Mobility ETF (KARS)

KARS is another popular EV ETF that tracks the Bloomberg Electric Vehicles Index. The index tracks companies across the board, ranging from pure EVs to those that provide components. It has net assets of about $234 million and an expense ratio of 0.70%. This makes it a highly expensive fund to hold. 

The biggest constituent stock in the fund is Analog Devices, which is a semiconductor that supplies several products to the industry. It is followed by NXP Semiconductors. 

KARS vs. S&P 500

Other large companies in the KARS ETF are Tesla, Mercedes Benz, General Motors, and Ford Motor. While GM, Ford, and Mercedes are known for their combustion cars, they are all planning to transition to EVs.

Global X Lithium & Battery Tech ETF (LIT)

In addition to investing in pure EV cars, it is possible to make money by focusing on industries that are correlated to the sector. The battery and lithium sector is one way of doing that. The idea is that one can make money by investing in lithium, which is an important metal used to manufacture batteries. 

LIT vs S&P 500

The LIT ETF is made up of companies that provide both lithium and those that manufacture batteries. Examples of these companies are Albemarle, TDK Corp, BYD, Samsung, and Panasonic Holdings. The fund gives you access to companies from places like China, the USA, South Korea, Japan, and Australia.

Amplify Lithium and Battery Technology ETF (BATT)

The BATT ETF is a popular fund that invests in companies that provide battery storage solutions, battery metals and minerals, and electric vehicles. It tracks the EQM Lithium & Battery Technology index. 

BATT vs S&P 500

According to its website, the fund invests in a number of important companies like BHP Group, Tesla, BYD, Contemporary Amper, and Glencore. As you can see, these are highly diversified companies that provide different services. They are also global in nature, and the fund has an expense ratio of 0.59%.

Summary

The EV industry is expected to change the world. In this article, we have looked at some of the most important EV companies, why their share prices have plummeted, and some of the most popular EV ETFs to invest in.


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