It’s hard to pick the best EV stocks in the fast-growing race for electric cars – the universe is staggeringly large Tesla (TSLA) cars and Tesla stock. But ETFs are aimed at taking out a lot of the guesswork.
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The interests are huge on the road to electrifying vehicles. The shares of the Tesla member of the electric car and the IBD 50 member rise by more than 700% in a year and rush past the 57% rise of S&P 500 until 17 March. Nine (NIO), the shares accelerated even faster: more than 1,400% within a year.
Tesla Stock or one of the many competitors?
But should you own shares in Tesla, Nio shares or other smaller players that you have never heard of? Are you prepared for the volatility that such high-octane stocks hold? Tesla’s shares and Nio shares fell 0.5% and 8.2% respectively this year. The S&P 500, on the other hand, rose by 5.8%.
Exchange traded funds try to make sure you are on the right side of the road no matter who wins. The six major ETFs that own EV shares have risen an average of 160% over the past 12 months.
“At any early stages, there will be a handful of winners and many losers,” said Todd Rosenbluth, head of mutual funds and mutual fund research at CFRA. “An ETF can offer investors a lower risk approach rather than identifying the best individual stocks.”
Tesla Taps a Hot Market
The EV market will be booming. The global electric vehicle market was just $ 162.3 billion in 2019, says Allied Market Research. This is 30% less than the combined income of Ford (F) and General Motors (GM) last year.
But the EV market is expected to grow by almost 400% to $ 802.8 billion by 2027. Strict deadlines to reduce carbon emissions around the world will make electrification of vehicles more urgent, if in some cases not necessary.
Wise participation in this market can determine the return in the future. Tesla stock is the best bet in the futures ARK Innovation ETF (ARKK), which gives many well-known investors a chance to earn their money. Tesla accounts for nearly 11% of the $ 24 billion ETF, which is consistently ahead.
But what if you want more of an EV play? There are options.
More than just Tesla shares: range of EV ETFs
The EV market is still emerging. It is therefore not surprising that the ETFs that own EV shares are very different.
Most investors who want to place EV shares in their portfolio reach the Global X Autonomous & Electric Vehicles ETF (DRIV). The $ 811 million ETF is more than double the size of its next biggest competitor: iShares Self-Driving EV and Tech (IDRV).
Interestingly, however, neither Tesla shares nor Nine shares are top five in the largest EV ETF. Tesla shares are only 2.4% of the 77-share portfolio and Nio is only 1.4%. Global X Autonomous & Electric Vehicles is rather strongly focused on large-cap companies with their hands in the market. Alphabet (GOOGL), an early pioneer in charting and self-management technology, is the ETF’s top position at 3.5%.
Know what you own with EV ETFs
Even if an ETF holds a larger share of the Tesla stock, you still do not get as much exposure to the EV market as you suspect. Tesla is the No. 1 position, 4.7%, in the small asset of $ 10.6 million Capital Link NextGen Vehicles & Technology ETF (EKAR).
But once you have a Tesla, it’s Google and Baidu (BIDU) and Nvidia (NVDA) and Intel (INTC), and then a bunch of car companies that are still dominated by their (traditional combustion engine) business, “said Dave Nadig, director of research at ETFTrends.com.
Other ETFs fill different holes. There is the SmartETFs Smart Transportation & Technology ETF (MOTO), which places 4.7% of the portfolio in Tesla shares but owns no Nio. Most new specialty acquisitions, or SPACs, that buy promising EV shares are also not in the ETFs.
ETFs targeting EV stocks can lead to disappointment. The riskier hold in KraneShares Electric Vehicles and Future Mobility (KARS) sticks when EV shares hit. The ETF is only 9.4% higher this year, which is about half of the 15.9% increase in the broader Global X Autonomous ETF.
ETFs that own EV shares like Tesla shares should expire, just like electric cars themselves. “While I think the electrification of transportation is good and inevitable, I’m not so sure it can be invested in a diversified way,” Nadig said.
Not your father’s Tesla stock
The performance of top ETFs holding EV shares such as Tesla varies greatly
| ETF | Symbol | Stock 12 months% Ch. | Year to date% Ch. | Assets ($ million) | Expense ratio |
|---|---|---|---|---|---|
| Global X Autonomous and Electric Vehicles | (DRIVE) | 182.8% | 15.9% | $ 811.0 | 0.68% |
| iShares Self-Driving EV and Tech | (IDRV) | 138.1% | 9.0% | 306.1 | 0.47% |
| SPDR S&P Kensho Smart Mobility | (HAIL) | 229.3% | 18.6% | 222.5 | 0.45% |
| CranesShares electric vehicles and future mobility | (KARS) | 153.4% | 9.4% | 186.9 | 0.70% |
| SmartETFs Smart transport and 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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