From 1907 to 1917, the growing car industry rendered the horse-drawn buggy nearly extinct. Thanks to low-cost manufacturing and a growing middle class, more and more Americans were able to take to the roads, aided by popular, affordable cars like the Ford Model T.
The next paradigm shift in the U.S. automotive industry occurred in 2008, when Tesla Inc. (ticker: TSLA) released the prototype of what would become its first commercially available electric vehicle, or EV: the Tesla Roadster.
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From there, Tesla would grow to become the world’s largest EV manufacturer, with a market cap of $569 billion in 2023.
The EV race isn’t over yet, though. In the U.S, upstart rivals like Rivian Automotive Inc. (RIVN) and Lucid Group Inc. (LCID) are nipping at Tesla’s heels. Across the sea, the Chinese EV industry is seeing rapid growth thanks to players like XPeng Inc. (XPEV) and Nio Inc. (NIO) capturing strong market share. Even traditional automotive manufacturers like General Motors Co. (GM) and Ford Motor Co. (F) are pushing for electrification of their existing and future product lineups.
As EV manufacturers continue to improve the range of their vehicles and lower costs, more and more consumers may ditch their internal combustion engine, or ICE, vehicles and opt for lower-emission alternatives. The increasing availability of charging infrastructure across developed countries will also help push more widespread consumer adoption of EV technology.
“With an EV ETF, you’ll get more than just EV manufacturers; you’ll also be invested in battery technology and the minerals required to manufacture them.” – Peter Krull, partner and director of sustainable investing at Earth Equity Advisors
Investors looking to capitalize on the continued growth in the EV industry have a wide swath of companies to choose from, but picking individual stocks can be risky. A potential solution with better diversification
is an exchange-traded fund, or ETF, that holds a portfolio of EV industry stocks.
“With an EV ETF, you’ll get more than just EV manufacturers; you’ll also be invested in battery technology and the minerals required to manufacture them,” says Peter Krull, partner and director of sustainable investing at Earth Equity Advisors. “You’ll also get charging infrastructure companies and some small-cap startups that could grow rapidly if their concept takes off,” Krull says.
Alec Lucas, research analyst at Global X ETFs, agrees: “The EV space is expected to be intensely competitive, and at this point, it is difficult to predict who the individual winners and losers will be. An ETF can provide targeted exposure to a theme by capturing the current and expected leaders while evolving at each rebalance.”
Here’s a look at the seven best electric vehicle ETFs to buy in 2023:
| EV ETF | Expense ratio |
| KraneShares Electric Vehicles & Future Mobility Index ETF (KARS) | 0.70% |
| Global X Autonomous & Electric Vehicles ETF (DRIV) | 0.68% |
| Global X Lithium & Battery Tech ETF (LIT) | 0.75% |
| Amplify Lithium & Battery Technology ETF (BATT) | 0.59% |
| Invesco Electric Vehicle Metals Commodity Strategy No K-1 ETF (EVMT) | 0.59% |
| iShares Self-Driving EV & Tech ETF (IDRV) | 0.47% |
| Ark Innovation ETF (ARKK) | 0.75% |
[See: 7 Best ETFs to Buy Now.]
KraneShares Electric Vehicles & Future Mobility Index ETF (KARS)
“Personally, I look for broad diversification in both industries and geography when it comes to EV ETFs,” Krull says. “China is the fastest-growing EV market, and Europe also has a number of leaders in the sector, so having an allocation to non-U.S.-based companies expands the possibilities for growth,” he says. A possible candidate here is KARS, which tracks the Bloomberg Electric Vehicles Index.
For a 0.7% expense ratio, or $70 annually per $10,000 invested, KARS provides exposure to not only global EV manufacturers, but also adjacent sub-industries like the Internet of Vehicles, or IOV, lithium and copper miners, charging infrastructure, and autonomous driving software. “We use KARS in our innovation portfolio because it checks off both industry and geographic diversification boxes,” Krull says.
Global X Autonomous & Electric Vehicles ETF (DRIV)
“Although EV sales have increased dramatically in recent years, the theme is still in its early stages of adoption, with substantial room for further growth,” Lucas says. “For example, global EV sales effectively doubled between 2020 and 2021, and increased by another 55% to 60% in 2022, but the global EV sales penetration rate stood at only about 13% in 2022,” he says.
Thus, investors could capitalize on future growth by buying a broad EV industry ETF like DRIV, which tracks the Solactive Autonomous & Electric Vehicles Index. This ETF holds 76 companies involved in autonomous vehicle software, EV manufacturing or EV component development, such as lithium batteries and cobalt mining. DRIV charges a 0.68% expense ratio.
Global X Lithium & Battery Tech ETF (LIT)
“Another recent catalyst for the EV industry is the push from automakers to vertically integrate into lithium mining or battery tech,” Lucas says. “GM’s investment in Lithium Americas to gain access to the developing Thacker Pass mine, and Tesla’s imminent commissioning of a lithium refinery in Texas, are just two recent examples of this effort to reinforce supply chains,” he says.
A great way to capitalize on these tailwinds is via LIT. Tracking the Solactive Global Lithium Index, LIT provides exposure to 41 companies involved in the full lithium cycle, ranging from miners to battery manufacturers. “These companies are likely to enjoy demand growth as a result of rising EV sales,” Lucas says. LIT charges a 0.75% expense ratio.
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Amplify Lithium & Battery Technology ETF (BATT)
Investors looking for a potential tax-loss harvesting partner for LIT can consider BATT, which also targets lithium miners and battery technology stocks. This ETF tracks the EQM Lithium & Battery Technology Index, which also holds some EV stocks like Tesla, currently the largest holding at an 8.2% weight.
Overall, BATT has a large-cap focus, with about 76% of its holdings having a market cap of over $10 billion. In terms of geographical representation, the majority of BATT’s holdings come from China at 28.6%, with Australia and the U.S. coming in next highest at 16.3% and 17.8%, respectively. For investors who don’t mind greater exposure to emerging-market equities, BATT could be a good higher-risk, higher-growth play on the EV industry. The ETF charges a 0.59% expense ratio.
Invesco Electric Vehicle Metals Commodity Strategy No K-1 ETF (EVMT)
“An often-overlooked way of investing in EVs is through the essential commodity inputs needed for EV production,” says Daniel Santiago, vice president of ETF research and distribution at Tidal Financial Group. “Commodities are one of the few inflation hedges that worked in 2021 and 2022, so an allocation can offer protection and benefit from supply or demand imbalances,” Santiago says.
To capture the returns of these commodities, investors can buy EVMT. Unlike the previous ETFs, EVMT does not hold miner stocks. Rather, the ETF actively manages a portfolio of nickel, copper, aluminum, cobalt and iron ore futures contracts. This makes EVMT a potential alternative investment for those looking to diversify a portfolio of equities. EVMT charges a 0.59% expense ratio.
iShares Self-Driving EV & Tech ETF (IDRV)
Investors looking for a lower-cost alternative to KARS can consider IDRV, which charges a 0.47% expense ratio. This ETF is passively managed, tracking the NYSE FactSet Global Autonomous Driving and Electric Vehicle Index. This ETF boasts strong international diversification, with just 28.3% of its holdings coming from the U.S., and countries such as China, South Korea and Germany having strong weightings.
A notable feature of this ETF is its high allocation to traditional European automotive manufacturers such as Renault SA (RNO) and preferred shares of Volkswagen AG (VOW) and Porsche Automobil Holding SE (PAH). In fact, each of the first two stocks have a higher allocation than Tesla, which sits at a 4.2% weight, just slightly ahead of Chinese competitor XPeng at a 3.6% allocation.
Ark Innovation ETF (ARKK)
Although not a pure-play EV ETF, Cathie Wood’s actively managed flagship ETF earns a place on this list due to its large holdings in Tesla. Currently, Tesla occupies the top spot in ARKK, with a 10.1% weighting. As the leader of the EV industry, Tesla climbed ARKK’s ranks after its record run-up from 2016 to 2020. Given that ARKK is focused on innovative stocks, it’s no wonder that Tesla remains a top holding.
That being said, a bet on ARKK is a bet on broader technological innovation. It just so happens that EVs are currently a part of that. Still, if the EV industry continues to grow at above-average rates, ARKK’s holdings could change to reflect this. Because ARKK is actively managed, Wood and her team are free to pick stocks according to their own research. ARKK charges a 0.75% expense ratio.
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7 Best Electric Vehicle ETFs to Buy originally appeared on usnews.com
Update 03/17/23: This story was previously published at an earlier date and has been updated with new information.
