Choosing the best EV actions in the fast-growing electric car race is difficult – the universe is frighteningly vast beyond just Tesla (TSLA) Tesla cars and stock. But ETFs aim to eliminate much of the conjecture.
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The stakes are huge on the road to electrifying vehicles. The shares of Tesla, a leader in electric cars and a member of the IBD 50, rose more than 700% in one year, surpassing the 57% increase in the S&P 500 through March 17. The champion of electric cars from China, Nio (NIO), saw the shares accelerate even more: more than 1,400% in the period of one year.
Tesla Stock or one of its many rivals?
But should you own Tesla shares, Nio shares or other smaller players that you have never heard of? Are you prepared for the volatility of owning such high-octane stocks? Tesla and Nio shares fell 0.5% and 8.2%, respectively, this year. The S&P 500, on the other hand, rose 5.8%.
Exchange-traded funds try to make sure you are on the right side of the road, no matter who wins. The top six ETFs that own EV shares have risen an average of 160% in the past 12 months.
“In any industry at an early stage, there will be a handful of winners and many losers,” said Todd Rosenbluth, CFRA’s head of ETF and mutual fund research. “An ETF (can) provide investors with a lower risk approach, rather than trying to identify the best individual stocks.”
Tesla hits a hot market
The EV market is ready to grow. The global electric vehicle market was only $ 162.3 billion in 2019, says Allied Market Research. This is 30% less than the combined revenue of Ford (Faith General Motors (GM) last year.
But the EV market is expected to grow by almost 400%, to $ 802.8 billion by 2027. Tight deadlines to cut carbon emissions worldwide will make electrifying vehicles more urgent, if not necessary in some cases.
Participating in this market wisely can determine the stock’s return in the future. Tesla’s shares are the No. 1 bet on the ARK Innovation ETF (ARKK), which is giving many famous investors a chance. Tesla accounts for almost 11% of the $ 24 billion ETF in assets, which is consistently ahead of the curve.
But what if you want a more EV game? There are options.
More than just Tesla Stock: Sizing Up EV ETFs
The EV market is still being born. Therefore, it is not surprising that ETFs that have EV stocks vary widely.
Most investors looking to place EV shares in their portfolio look for the Global X Autonomous & Electric Vehicles ETF (DRIV). The $ 811 million ETF in assets is more than twice the size of its next biggest rival: iShares Self-Driving EV and Tech (IDRV).
Interestingly, neither Tesla’s shares nor Nio’s shares are the top five stakes in the largest EV ETF, however. Tesla shares account for only 2.4% of the 77-share portfolio and Nio is only 1.4%. Instead, Global X Autonomous & Electric Vehicles is highly focused on large technology companies with their hands on the market. Alphabet (GOOGL), one of the first pioneering companies in mapping technology and autonomous driving, is the ETF’s first position, with 3.5%.
Know what you own with EV ETFs
Even if an ETF holds a larger share of Tesla’s shares, you still won’t have as much pure exposure to the EV market as you suspect. Tesla is the top spot, 4.7%, in the tiny $ 10.6 million in Capital Link NextGen Vehicles & Technology ETF (EKAR) assets.
But “after you stop taking a sip of Tesla, it’s Google and Baidu (BIDU) and Nvidia (NVDA) and Intel (INTC), and then a lot of automotive companies that are still dominated by their business (traditional combustion engines), “said Dave Nadig, research director at ETFTrends.com.
Other ETFs fill different holes. There is SmartETF’s Smart Transportation & Technology ETF (MOTO), which places 4.7% of the portfolio in Tesla shares, but does not own Nio. And, most new, special-purpose acquisition companies, or SPACs, that buy promising EV shares are also not in ETFs.
ETFs targeting EV stocks can lead to disappointment. The riskiest stakes in KraneShares Electric Vehicles and Future Mobility (KARS) hurt when EV stocks are hit. The ETF rose just 9.4% this year, which represents about half the 15.9% gain in the broader Autonomous Global X ETF.
ETFs that have EV shares, like Tesla’s, need to mature, as well as electric cars themselves. “So while I think transport electrification is good and inevitable, I’m not sure if it can be invested in a diverse way,” said Nadig.
It’s not your father’s Tesla stock
The performance of the main ETFs that have EV shares, such as Tesla, vary enormously
| ETF | Symbol | Stock 12 months% Ch. | Year to date% ch. | Assets ($ million) | Expense rate |
|---|---|---|---|---|---|
| Autonomous and Electric Vehicles Global X | (DRIV) | 182.8% | 15.9% | $ 811.0 | 0.68% |
| iShares Self-Driving EV and technology | (IDRV) | 138.1% | 9.0% | 306.1 | 0.47% |
| SPDR S&P Kensho Smart Mobility | (SALUTATION) | 229.3% | 18.6% | 222.5 | 0.45% |
| KraneShares electric vehicles and future mobility | (KARS) | 153.4% | 9.4% | 186.9 | 0.70% |
| SmartETFs Smart Transportation & Technology | (MOTO) | 130.2% | 9.3% | 14.3 | 0.68% |
| Capital Link NextGen vehicles and technology | (EKAR) | 153.8% | 9.5% | 10.6 | 0.95% |
Sources: IBD, S&P Global Market Intelligence, ETF.com
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