Twenty years ago, the idea that drivers would one day charge their cars like they charge their phones would’ve been incredulous to many. However, amid concerns over climate change, falling costs, and government support around the world, it’s clear that electric vehicles (EVs) are the vehicle of the future.
According to a Bloomberg New Energy Finance (BNEF) analysis, companies, governments, and households spent a record $139 billion on EVs and charging infrastructure in 2020, a 28% increase from the previous year. Impressively, EV companies raised an estimated $28 billion from stock market investors in 2020 compared to $1.6 billion in 2019.
The COVID-19 pandemic does not appear to be slowing the industry’s march forward. As the world’s major policymakers, ranging from China to the European Union and, most recently, the Biden administration, push for a carbon-free future, the EV industry is poised to succeed in a post-pandemic world.
An Overview Of The Valuable EV Stocks And ETFs
In the context of strong support from private investors and regulators, clean transportation and transportation-associated companies would be valuable additions to any investors’ portfolios. This article aims to provide an overview of the following EV stocks and ETFs:
Tesla, Inc. (NASDAQ:TSLA)
Any discussion about EVs would be remiss to omit Tesla, whose name is virtually synonymous with EVs. Tesla appeared to be a winner at the outset of the pandemic, and its stock climbed from $86 from the beginning of 2020 to a peak of $880 last month. Its recent drop is largely a result of its $1.5 billion bet on Bitcoin and CEO Elon Musk’s subsequent tweets.
Although Tesla is still an industry leader, analysts are split on Tesla, giving it a consensus rating of 3.03 (out of 5). Its systemic governance issues pose a material risk to the company. Tesla’s Board of Directors has a history of being “Musk Loyalists,” which unnecessarily exposes the company to the antics of Musk himself, whose statements have landed him in hot water with the Securities and Exchange Commission and Department of Justice in the past. Most recently, he has attempted to distance himself from Tesla’s crypto purchase and the criticism that it exposes the company to the price swings of a notoriously volatile asset.
General Motors Company (NYSE:GM)
With a consensus rating of 4.8, this American icon is a strong addition to a portfolio. Although most of its current vehicles are internal combustion-engine, GM plans to offer 30 new EVs by 2025 and is working with partners such as the Environmental Defense Fund to build out the necessary charging infrastructure. GM’s Jan 2021 announcement to offer only zero-emissions vehicles by 2035 took the automotive world by surprise and signaled that the future of transportation is clean.
Founded in 2014, Nio is a Chinese EV manufacturer and is often referred to as the “Tesla of China.” Although its sales pale in comparison to those of Tesla’s, the company has a market capitalization of $71.4 billion. With a consensus rating of 4.04, this is a buy. Nio, which markets itself as a lifestyle brand, currently sells premium electric SUVs in China. One way it differentiates itself from the competition is through its battery swapping program. Designed to address the hassle of charging, the automaker has set up 162 stations across China that can change a car’s depleted battery with a fully-charged one in less than 10 minutes.
The Chinese EV industry is heavily subsidized by the Chinese government, and Nio itself had to be bailed out by the government in exchange for a 24.1% stake in the company. The government is reducing those subsidies by 20% this year, and it remains to be seen whether Nio can compete with Tesla in its home country. While Nio plans to enter the global markets in 2023-2024, starting with Europe, it is unlikely to gain a foothold in the US given the recent deterioration in Sino-US relations and a 27.5% tariff on Chinese cars. That said, China is already the world’s largest EV market and was the only major world economy to report positive economic growth in 2020, and Nio is poised to benefit from domestic growth.
Li Auto (NASDAQ:LI)
A peer to Nio, Li Auto will likely benefit from the trends discussed above. Li Auto recently released its fourth quarter results, reporting a positive net income for the first time. Li Auto also beat analysts’ estimates of a 125 RMB loss, instead posting a $16.5 million profit. The company currently only sells one model, the Li One, a plug-in hybrid sports car, but plans to release at least two new models beginning 2022 and its first full EV in 2023. With a consensus rating of 4.38, this is a definite buy for investors interested in EV markets outside of the Western hemisphere.
Many consider this EV start-up as the closest competitor Tesla may face. Currently a private company, Rivian is expected to seek an IPO at a valuation of $50 billion later this year. This valuation makes sense considering the long list of big names backing the company. That list includes Ford Motors, BlackRock, Fidelity, T. Rowe Price, and Amazon, which has already placed an order of 10,000 delivery vans. Rivian’s all-electric SUV and pickup truck are expected to perform well in the US, and the company differentiates itself on manufacturing off-road “adventure” vehicles. Additionally, its CEO RJ Scarriage is often praised as being a level-headed foil to Musk who many hope will avoid the controversies Tesla embroils itself in.
|Company Name||Summary||Share Price (USD)||Market Capitalization (USD)||Forecasted 2021 EPS, GAAP (USD)|
|Tesla Inc.||EV manufacturer seeking to expand fleet from sedans to include consumer and commercial trucks||686.44||656.9B||2.88|
|General Motors Company||Established American automaker expanding into EV space with Ultium battery and platform||54.11||77.9B||5.88|
|Nio Inc.||Young Chinese EV manufacturer and service provider seeking to expand into global markets||43.29||67.5B||-2.49|
|Li Auto Inc.||Young Chinese automaker expanding into smart EV and sport utility vehicle markets||23.74||21.3B||-0.24|
|Rivian Automotive Inc.||Automaker offering lightweight and aerodynamic platform cars, SUVs, and trucks expected to go public in 2021||NA||50B (EST)||NA|
In recent days, the shares of Tesla, Nio, and Li Auto have fallen amid concerns of a global shortage in microchips, an integral component of next-generation vehicles. Investors shouldn’t be overly alarmed as it is the result of a mismatch between an unexpectedly quick recovery in car demand and a supply chain shared with other industries, namely consumer electronics, which itself has experienced a boom during the lockdown. Executives anticipate the shortage to end after this summer, and some automakers (e.g. Toyota, Hyundai/Kia) are faring much better than others (e.g. Volkswagen).
It’s important to bear in mind the long-term trends that ultimately swing in EV and EV-affiliated companies’ favor.
The companies discussed above are just a few of the many players in this dynamic space. Investors are likely better off buying thematic exchange traded funds (ETFs) in order to better diversify their EV and automotive holdings, as well as gain exposure to lofty shares such as Tesla.
Below are a few of the most popular EV and EV-related ETFs, all of which had strong net asset value (NAV) growth in 2020:
Global X Autonomous & Electric Vehicles (NASDAQ:DRIV) - $26.96
This fund focuses on companies involved in the development of autonomous vehicle technology, EVs, EV components such as lithium batteries, and EV materials such as lithium and cobalt. Many of its top holdings include big tech names such as Alphabet and Apple, which may be reviving its plans for an Apple Car, as well as automakers such as Tesla and Toyota. This fund is tilted towards developed markets, with a country exposure of 59.3% USA, 7.3% China, 6.6% Japan, 5.0% South Korea, and 3.5% Germany.
The KARS index tracks the performance of companies involved in the production of EVs and/or their components, as well as autonomous driving, shared mobility, electric infrastructure, and hydrogen fuel cell manufacturing. Its top holdings, like DRIV, include tech companies and car manufacturers alike (excluding Tesla), with the addition of semiconductor companies.
SPDR Kensho Smart Mobility ETF (NYSEARCA:HAIL) - $62.98
HAIL tracks the S&P Kensho Smart Transportation Index, which is composed of US-listed equities across developed and emerging markets. This index focuses on autonomous vehicle technology, EV technology, commercial drones, and advanced transportation systems. Its top ten holdings include Tesla and Nio, as well as fuel cell and EV charging companies.
IDRV tracks the performance of companies in the EV self-driving sphere across developed and emerging markets. Its top ten holdings are mostly big tech and car manufacturer names, many of which are covered by previous ETFs. IDRIV also reports its environmental, social, and governance (ESG) ratings and metrics, a benefit for investors worried about material risks posed by non-traditional financial metrics.
Global X Lithium & Battery Technology ETF (NYSE:LIT) - $63.45
LIT invests in companies that span the full lithium cycle from mining and refining to batter production. Energy storage and battery technology are both the obstacle and bridge to a carbon-free future, both in the EV and renewable energy sector. Given these trends, LIT may prove to be a valuable long-term hold. The ETF’s top ten holdings are mostly battery manufacturers, such as Albemarle Corp., the largest provider of lithium batteries for EVs, and a couple big name electronics companies such as Panasonic Corp.
Amplify Lithium & Battery Technology ETF (NYSEACRA:BATT) - $16.87
BATT tracks the EQM Lithium & Battery Technology Index and comprises companies in the development, production and use of lithium battery technology. Its top industry allocations are in the materials industry (50%), followed by automobiles & components (20.9%), and in capital goods (14.5%). This index is tilted heavily towards China, giving it 38.02% weight, and offers broad exposure to developed and emerging markets alike.
Although plug-in cars currently only comprise 1% of US car sales and 2.6% of global sales, according to the International Energy Agency, investors should not be skeptical. The small figures today mean massive room for growth. Indeed, Bloomberg projects that EVs will account for 10% of global passenger vehicle sales by 2025 and rise to 48% by 2040. These estimates are equally optimistic for other forms of transportation, including buses, commercial vehicles (although hydrogen fuel cells may stand to benefit more), and two-wheelers such as scooters.
As decarbonization plays an increasingly important role across all sectors of the global economy, the EV and EV-affiliated industry is slated to benefit from a combination of technological innovation, private funds, and regulator support. Any of the companies and ETFs discussed in this article would be valuable additions to investors’ portfolios, which in turn, will help drive the transportation industry into a zero-emissions future.
About the Author
Natalie Wu is pursuing a Masters in International Economics and Finance at the Johns Hopkins School of Advanced International Studies. She can be reached at [email protected].