Drive Gains with Electric Vehicle ETFs

Electric Vehicles (EVs) are widely considered a better friend for the environment. They emit less greenhouse gases and air pollutants than conventional cars - and this takes into account their production and electricity generation to keep them running. As the world rallies to combat climate change, the EV supply chain will get its fair share of attention, making Electric Vehicle ETFs a potentially attractive long-term investment for patient investors.

In this article we highlight how the climate change is boosting demand for EVs, materials such as cobalt and what industries are set to benefit from increased electrification of mobility.

Climate change brightens the outlook for electric vehicles 

According to the IEA (International Energy Agency), transport accounts for around 20% of global emissions. Road travel accounts for 75% of these emissions or 15% of the total CO2 output. Most of this comes from passenger vehicles like cars and buses, which contribute to 45.1%. The other 29.4% come from trucks carrying freight.

To reduce CO2 emissions, governments can increase adoption and deployment of electric vehicles (EV) as highlighted by the proposed actions of Goal #1 of COP26. The world has already made progress, with the global electric car stock reaching the 10 million mark in 2020, a 43% increase over 2019, and representing 1% of all cars on the road.

Current policies in different parts of the world suggest a healthy growth over the next decade: in the conservative scenario (Stated Policies Scenario, STEPS), the EV stock across all modes (except two/three-wheelers) could reach 145 million in 2030, or 7% of the total road vehicle fleet. EV markets could be significantly larger if governments accelerate efforts to reach climate goals. In the optimistic scenario (Sustainable Development Scenario, SDS), the global EV fleet reaches 230 million vehicles in 2030 (excluding two/three-wheelers), or 12% of all cars on the roads.

Putting your portfolio in the driving seat

The increased adoption of electric vehicles will trigger a tsunami of inflows into the electric vehicle supply chain, and if you're an investor, there are certain industries to pay attention to. They include companies that derive most of their revenues, or a large portion of revenues, from higher demand of electric vehicles.

1. Electric Vehicle manufacturers

Source: Statista, 2021

Obviously, we need EV manufacturers to design and produce the cars. In the first half of 2021, Tesla, VW Group and General Motors held one third of the total global plug-in electric vehicle market share. Other established vehicle manufacturers which largely sold internal combustion cars are increasingly shifting to electric vehicles to catch up with early adopters. Companies like NIO and Lucid Motors are also among many exciting electric vehicles start-ups trying to make a market break through.

2. Battery supply chain:

The battery pack is the most expensive and one of the most important parts of an electric vehicle. Huge efforts will be made by EV manufacturers to ensure a steady supply of lithium battery components, not to mention the R&D funds that will be poured in to improve the design and performance of the end products. According to ResearchAndMarkets.com, the global lithium-ion battery market size is projected to grow from USD 41.1 billion in 2021 to USD 116.6 billion by 2030 at a CAGR% of 12.3%.

The industry growth will drive demand along the battery supply chain, including:

• Lithium / Cobalt Miners
• Lithium / Cobalt Refiners
• Lithium Battery Manufacturers

3. Semiconductor manufacturers

Semiconductor chips are used to power a variety of vehicle features, from power steering and backup cameras to emergency braking systems. What's remarkable is that Battery-Electric Vehicles consume more than double (~2.3x) the semiconductors compared to internal combustion cars, making them a hot commodity with future high demand.

Since the pandemic eased, a global chip shortage impacted multiple automakers amid a surge in demand in different semiconductor consuming industries (e.g., electronics). This will drive huge investments to increase production capacities.

According to a comprehensive research report by Market Research Future (MRFR), the automotive semiconductor market size is projected to be worth USD 137.82 billion by 2028, registering a CAGR of 18.15% during the forecast period (2021 - 2028). The market is currently valued at USD 51.25 billion.

Investors should focus on companies that derive a great portion of their revenue from selling semiconductors to automotive manufacturers like Infineon Technologies AG,NXP Semiconductors, STMicroelectronics and ON Semiconductor, amongst others.

Investing through Electric Vehicle ETFs

To capture a broad cross-section of the supply chain and not miss out on key players, Exchange Traded Funds (ETFs) could do the trick. Trackinsight data reveals 9 Electric Vehicles ETFs. We have ranked each ETF by size (as of November 2nd, 2021).

List of Electric Vehicle ETFs

1. Global X Autonomous & Electric Vehicles ETF (DRIV) - $1,200 million
2. Global X China Electric Vehicle and Battery ETF - $972.26 million
3. iShares Electric Vehicles and Driving Technology UCITS ETF (ECAR) - $813.32 million
4. Cathay Global Autonomous and Electric Vehicles ETF - $664.48 million
5. iShares Self-Driving EV and Tech ETF (IDRV) - $516.04 million
6. Lyxor MSCI Future Mobility ESG Filtered (DR) UCITS ETF (MOBI) - $339.84 million
7. KraneShares Electric Vehicles & Future Mobility ETF (KARS) - $325.08 million
8. NH-Amundi HANARO Electric&Hydrogen Vehicle ETF - $24.58 million
9. Fidelity Electric Vehicles and Future Transportation ETF - $19.25 million

Global X Autonomous & Electric Vehicles ETF (DRIV) is the largest electric vehicle ETF in the market with over $1.2 billion in assets under management. The fund invests in companies involved in the development of autonomous vehicle technology, electric vehicles (“EVs”), and EV components and materials by tracking the Solactive Autonomous & Electric Vehicles Index. This includes companies involved in the development of autonomous vehicle software and hardware, as well as companies that produce EVs, EV components such as lithium batteries, and critical EV materials such as lithium and cobalt.

The fund has 76 holdings with large exposure to the United States (61.5%). Japan and China come in second and third with 7.9% and 4.9% respectively. In terms of sector exposure, Consumer Discretionary has the lion's share of 38.1%, followed by Information technology (28.6%), Materials (15.4%) and Industrials (12.1%). The top holdings include Tesla (4.93%), Nvidia (3.95%), Microsoft (3.14%), Alphabet (3.05%), Qualcomm (2.83%), Apple (2.67%) and Toyota Motor (2.62%).

The fund trades on the Nasdaq and charges an annual fee of 0.68%. Since inception on April 13th, 2018, DRIV generated a cumulative gain of 110% (as of October 31st, 2021).

For focused exposure on other supply chain players, investors can check out the list of the following ETF themes:

• Semiconductor ETFs
• Battery Value Chain ETFs
• Rare Earth Metals ETFs
• Smart City ETFs

Keep reading:

• ETFs in play after COP26 Summit
• Wall street closes at new highs on earnings cheer and strong jobs report
• World Investment Forum - International Sustainable Funds Conference

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