From Chinese upstarts to Tesla to legacy automakers, the EV playing field is rich with possibility.
The days of the internal combustion engine are numbered. Growing concerns around greenhouse gas emissions have sparked a shift in the automotive industry to the production of electric vehicles, or EVs. This rapidly expanding industry is currently locked in a battle for market dominance between three types of companies. On one side, dedicated EV manufacturers like Tesla Inc. (ticker: TSLA), Lucid Group Inc. (LCID) and Rivian Automotive Inc. (RIVN) attempt to maintain their first-mover advantage. Across from them, established and long-standing American manufacturers like Ford Motor Co. (F) and General Motors Co. (GM) are pivoting toward electrification for their upcoming models. Finally, upstart Chinese competitors like Xpeng Inc. (XPEV) and Nio Inc. (NIO) are carving out a swath in the overseas market. While investors can buy EV stocks individually, a more diversified approach might be via an exchange-traded fund, or ETF. Here are the seven best EV ETFs to buy in 2022.
iShares Self-Driving EV and Tech ETF (IDRV)
IDRV tracks the NYSE FactSet Global Autonomous Driving and Electric Vehicle Index, a proprietary index which holds 117 EV-related companies from developed and emerging markets. Included are not only pure-play EV companies, but also EV industry companies that develop battery technology, self-driving software, materials and support services. Represented in the top holdings are several large-cap U.S. stocks like Tesla, Ford and GM, but also overseas large caps like Toyota Motor Corp. (7203) and Samsung Electronics Ltd. (005930). Overall, 52.2% of the ETF is concentrated in U.S. stocks, with 10.3% in Japanese shares and 9.9% in German stocks. However, pure-play EV investors might not like the fact that the ETF also holds broad technology companies such as Apple Inc. (AAPL), Alphabet Inc. (GOOGL) and Qualcomm Inc. (QCOM). IDRV costs an expense ratio of 0.47%, meaning it has a $47 fee for every $10,000 invested annually.
Global X autonomous & Electric Vehicles ETF (DRIV)
Global X is a well-known provider of niche thematic funds, with DRIV being a great example. This ETF tracks the Solactive Autonomous & Electric Vehicles Index, which holds a portfolio of 75 companies involved in the development of EV components and materials. This includes both software and hardware, with a focus on EV critical materials like lithium and cobalt. In terms of holdings, DRIV is very similar to IDRV, with the same large-cap tech stocks represented at the top, and U.S. and Japanese stocks represented highest. However, the inclusion of mid- and small-cap materials stocks gives the ETF slightly higher volatility than the benchmark S&P 500, with a beta of 1.3. In terms of fees, the ETF costs an expense ratio of 0.68%, or around $68 annually for a $10,000 investment.
Fidelity Electric Vehicles and Future Transportation ETF (FDRV)
Fidelity is best known for its roster of low-cost, broad-market index mutual funds, but the firm has also expanded into thematic ETFs. A great example is FDRV, which tracks the proprietary Fidelity Electric Vehicles and Future Transportation Index. Represented in this index are EV manufacturers, companies that produce EV components and materials, software developers and support service firms. Notable for FDRV is the inclusion of emerging-market EV makers like Li Auto Inc. (LI) and Xpeng, via their American depositary receipts, or ADRs. Overall, the fund is strongly tilted toward large-cap U.S. growth stocks. However, compared to IDRV or DRIV, the second-largest geography represented in FDRV is Chinese EV stocks instead of Japanese ones. FDRV is also cheaper than the previous options with an expense ratio of 0.39%.
Simplify Volt RoboCar Disruption and Tech ETF (VCAR)
Unlike the previous ETFs on the list, VCAR is actively managed. Instead of passively tracking an index, VCAR’s holdings are selected based on the fund managers’ assessment of disruptive companies when it comes to autonomous driving. The goal of VCAR is to select the few “winners” based on fundamentals that will dominate the industry. For instance, the fund’s largest holding is currently Tesla, as Simplify believes it has all the elements necessary to deploy fully autonomous driving. Then, VCAR deploys a derivative overlay to enhance both upside and downside exposure. This is done via the use of call and put options. This is a high-risk, high-reward strategy best suited for advanced investors highly bullish on future growth prospects. The ETF costs a higher expense ratio of 0.95%.
SPDR S&P Kensho Smart Mobility ETF (HAIL)
State Street is well known for its suite of 11 “Select Sector” ETFs that each track a different sector represented in the S&P 500 index. However, the firm has also released more thematic ETFs that track a specific industry. A prime example is HAIL, which tracks the S&P Kensho Smart Transportation Index. This index is composed of 92 companies drawn from other S&P Kensho indexes, including the Electric Vehicles Index, Autonomous Vehicles Index, Advanced Transport Systems Index and the nonmilitary portions of the Drones Index. Thus, the ETF is not a pure-play EV fund but does contain significant EV exposure with top holdings in Rivian, Tesla and Blink Charging Co. (BLNK). Overall, automobile manufacturers and automotive parts and equipment companies account for 22.4% and 12.4% of the ETF, respectively. HAIL costs an expense ratio of 0.45%.
KraneShares Electric Vehicles & Future Mobility ETF (KARS)
Investors looking for pure-play EV exposure can buy KARS, which tracks the Bloomberg Electric Vehicles Index. This index holds 66 global companies that either produce EVs or EV components, such as lithium-ion battery technology and charging infrastructure. Companies involved in both commercial and consumer transportation are represented, as are software companies that deal with the “internet of vehicles” and autonomous driving. The fund holds predominantly U.S. EV stocks like Tesla, Lucid and Rivian, but also Chinese ones like Xpeng and Nio. Thanks to the EV boom, KARS has an annualized 23.7% return over the past three years. The ETF costs an expense ratio of 0.7%.
Global X Lithium & Battery Tech ETF (LIT)
The most critical component of EVs is the battery. For EVs to be competitive with conventional fuel-driven vehicles, the battery must be sufficiently lightweight, hold enough charge to rival a full gas tank, be cost effective and meet safety standards. Currently, lithium-ion batteries are best able to meet these requirements, and thus are heavily represented in EV technology, with hydrogen fuel cells coming in second. Investors who want to target the EV supply chain can bet on battery technology via LIT, which tracks the Solactive Global Lithium Index. This index holds 39 companies that are involved in various phases of the lithium cycle, including mining, refinement and battery production. Compared to previous ETFs, LIT is heavily concentrated in Chinese equities at 38.8% of the fund, with U.S. stocks coming in second at 21.7%. The ETF charges an expense ratio of 0.75%.
7 electric vehicle ETFs to buy:
— iShares Self-Driving EV and Tech ETF (IDRV)
— Global X autonomous & Electric Vehicles ETF (DRIV)
— Fidelity Electric Vehicles and Future Transportation ETF (FDRV)
— Simplify Volt RoboCar Disruption and Tech ETF (VCAR)
— SPDR S&P Kensho Smart Mobility ETF (HAIL)
— KraneShares Electric Vehicles & Future Mobility ETF (KARS)
— Global X Lithium & Battery Tech ETF (LIT)
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Update 09/19/22: This story was previously published at an earlier date and has been updated with new information.