Waiting For Electric Vehicles ETFs To Get In Gear

The electric vehicle theme remains compelling to some investors, but it has not been immune from the recent shift away from riskier. Exchange-traded funds dedicated to this investment niche are usually chock full of growth and technology stocks, making the products vulnerable when market sentiment shifts to less risky fare.

This month, the Global X Autonomous & Electric Vehicles ETF DRIV is lower by about 12 percent.

What Happened

As is the case with many thematic ETFs, investors considering DRIV or any of the other electric vehicle funds will have to exercise some patience. The global electric vehicle market is expected to deliver exponential growth, but that growth is measured in years, not days or weeks.

In a recent note, IHS Markit said electric vehicle sales will rise to 7.6 percent of the U.S. automotive market in 2026.

“The number of EVs on offer to US consumers is set to explode in the coming years, with EV investments and the impact of those investments on automakers' financial results subjects of intense scrutiny in recent months,” said the research firm.

Why It's Important

DRIV, which is just over a year old, follows the Solactive Autonomous & Electric Vehicles Index. Fortunately, at least at the moment, the ETF is not dominated by Tesla Inc. TSLA, the name many investors associate with the U.S. electric vehicle industry.

While Tesla is one of DRIV's 77 holdings, the fund features a wide-ranging approach to the autonomous and electric vehicle markets, holding shares of hardware, software and semiconductor makers as well as makers of components such as lithium batteries. That broad-based approach could make DRIV an effective avenue for accessing the expected growth of the electric vehicle market.

“By 2023, IHS Markit forecasts 43 brands will offer at least one EV option - this will include nearly all existing brands as well as new brands entering the market - compared to 14 brands offering EVs in 2018,” said Markit.

What's Next

Big growth is expected and that could mean upside in DRIV for patient investors.

“IHS Markit forecasts that sales of vehicles with an electric propulsion system will reach 1.28 million units in the US in 2026, compared with just less than 200,000 units in 2018,” according to the research firm. “In 2018, vehicles with electric powertrains accounted for 1.2% of the US market, about double the share in 2017, an increase almost solely due to the arrival of the Tesla Model 3.”

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