One of the most prominent types of exchange-traded funds, or ETFs, available in the market today is the thematic ETF.
These ETFs aim to capture the market dynamics of specific trends or themes, such as space exploration, genomics or even artificial intelligence, offering investors a focused exposure to these emerging niche industries. One such theme that has surged in popularity over the last decade is electric vehicles, or EVs.
“We believe that EVs is a multi-decade investment theme that investors may benefit from exposure to,” says Anthony Sassine, senior investment strategist at KraneShares. “The runway for growth is clear as the world embarks on a mission to replace 1.3 billion internal combustion engine vehicles with electric vehicles over the next 20 to 30 years.”
Industry disruptors like Tesla Inc. (ticker: TSLA), Rivian Automotive Inc. (RIVN), Lucid Group Inc. (LCID), NIO Inc. (NIO) and others have steadily eroded the market dominance once held by traditional automotive manufacturers such as Ford Motor Co. (F) and General Motors Co. (GM).
“Global EV sales are likely to reach just under 14 million units in 2023, which would represent 32% year-over-year growth,” says Alec Lucas, research analyst at Global X ETFs. “For the first half of the year, global sales increased by more than 40%.”
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Recognizing the disruption, even the traditional automakers are now navigating their own transition to EVs, but the pure-play EV companies are now fairly entrenched. “The pure EV companies are winning the race versus traditional automakers,” Sassine says. “This advantage will continue to grow and they will continue to grab auto market share.”
By choosing a thematic ETF targeting the EV industry, investors can tap into the market as a whole without betting on the success of a single company. This reduces company-specific and geography-specific risks.
“Personally, I look for broad diversification in both industries and geography when it comes to EV ETFs,” says Peter Krull, partner and director of sustainable investments at Earth Equity Advisors. “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.”
While one electric vehicle manufacturer might face challenges, another could be thriving. If the U.S. market is stagnating, the Chinese market may be booming. By investing in a thematic ETF, one could potentially benefit from the overall sector’s global growth, diversifying risks and capturing a broader slice of the EV industry’s long-term evolution.
“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,” Lucas says. “An exchange-traded fund, or ETF, can provide targeted exposure to a theme by capturing the current and expected leaders while evolving at each rebalance.”
Sassine agrees with Lucas, noting: “The electric vehicle ecosystem tends to be broad and includes many industries, so owning the entire basket rather than owning one or two companies alone tends to better diversify risks and provides a more balanced approach.”
Here are seven of the best EV ETFs to buy in 2023:
| Fund | Expense ratio | Average annual total return since inception |
| KraneShares Electric Vehicles & Future Mobility Index ETF (KARS) | 0.72% | 3.8% |
| Global X Autonomous & Electric Vehicles ETF (DRIV) | 0.68% | 10% |
| Global X Lithium & Battery Tech ETF (LIT) | 0.75% | 5.9% |
| Amplify Lithium & Battery Technology ETF (BATT) | 0.59% | 8.2% |
| iShares Self-Driving EV and Tech ETF (IDRV) | 0.47% | 10.7% |
| Invesco Electric Vehicle Metals Commodity Strategy No K-1 ETF (EVMT) | 0.59% | -26.6% |
| SPDR S&P Kensho Smart Mobility ETF (HAIL) | 0.45% | 2.2% |
KraneShares Electric Vehicles & Future Mobility Index ETF (KARS)
“A year or so ago, analysts were discussing the imminent demise of pure EV companies as the monster traditional automakers catch up in production,” Sassine says. “Today, governments are enacting policies to protect the traditional companies from pure EV startups.” Investors who agree with Sassine can use KARS for exposure to EV stocks at a 0.72% expense ratio.
This ETF tracks the Bloomberg Electric Vehicles Index, which not only holds EV manufacturers, but also companies responsible for EV infrastructure, materials and software for autonomous driving. Tesla currently is the top holding of KARS with a 5% weight, and Chinese EV manufacturers like XPeng Inc. (XPEV) and Li Auto Inc. (LI) also make an appearance.
Global X Autonomous & Electric Vehicles ETF (DRIV)
“Government agencies continue to actively support EV adoption,” Lucas says. “In September, the U.S. Department of Energy made $12 billion available in grants and loans for projects that convert existing automobile manufacturing capacity into plants that can support EV production, and another $3.5 billion for advanced battery and energy storage capacity.”
To capitalize on the favorable regulatory tailwinds, EV investors can buy DRIV. This ETF tracks the Solactive Autonomous & Electric Vehicles Index, which currently holds 76 global stocks involved in EV manufacturing, EV components such as batteries and semiconductors, and EV raw materials like lithium and cobalt. The ETF charges a 0.68% expense ratio.
Global X Lithium & Battery Tech ETF (LIT)
“In September, the global weighted average price for lithium-ion cells repeatedly dropped below $100 per kilowatt-hour, or kWh, for the first time in several years due to falling raw material prices,” Lucas says. “One hundred dollars per kWh is widely considered the point at which EVs can reach cost parity with internal combustion engine, or ICE, vehicles, and where automakers can sell EVs at similar margins to ICE.”
To capitalize on this trend, investors can move farther down the EV supply chain by targeting companies involved in lithium battery technology. LIT provides this exposure by tracking the Solactive Global Lithium Index, which currently consists of 41 global lithium mining, refining and battery production companies. The ETF charges a higher expense ratio compared to DRIV, at 0.75%.
Amplify Lithium & Battery Technology ETF (BATT)
Investors looking for a more affordable alternative to LIT can consider BATT, which charges a lower 0.59% expense ratio. This ETF targets the EQM Lithium & Battery Technology Index, which is also more diversified with 113 global holdings. The index consists of battery storage, battery materials and EV companies from around the world, with U.S., Chinese and Australian stocks making up the majority.
BATT’s holdings span multiple industries. On the materials side, investors gain exposure to not only lithium, but also nickel, cobalt and manganese companies. It also holds companies that provide the charging infrastructure for EVs, as well as also notable EV manufacturers like Tesla. Since its inception in 2018, BATT has accumulated just over $124 million in assets under management, or AUM.
[READ 7 Best Lithium Stocks and ETFs to Buy Now]
iShares Self-Driving EV and Tech ETF (IDRV)
“Several other EV ETFs seem to have tried to juice their returns by adding non-EV stocks like Nvidia Corp. (NVDA) and Microsoft Corp. (MSFT),” Krull says. “If you’re going to buy an EV ETF, make sure to look at the holdings to make sure they are related to the EV theme.” For example, some of DRIV’s largest holdings include Nvidia, Alphabet Inc. (GOOG, GOOGL), Apple Inc. (AAPL) and Microsoft.
An alternative to DRIV with less exposure to these non-EV tech giants is IDRV. By tracking the NYSEA FactSet Global Autonomous Driving and Electric Vehicle Index, IDRV not only holds EV manufacturers like Tesla, Rivian and XPeng, but also includes combustion engine automotive manufacturers like Renault SA (OTC: RNLSY) and Volkswagen AG (OTC: VWAGY). The ETF charges a 0.47% 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.”
Instead of investing in EV stocks, investors can bet on the prices of commodities essential to EV manufacturing such as cobalt, aluminum, nickel, iron, copper and lithium via EVMT, which uses futures contracts for exposure. The ETF charges a 0.59% net expense ratio and does not require investors to file a Schedule K-1 form for tax purposes, unlike some other commodity ETFs.
SPDR S&P Kensho Smart Mobility ETF (HAIL)
HAIL is less of a pure-play EV than a thematic ETF focused on the future of transportation as a whole. Its benchmark, the S&P Kensho Smart Transportation Index, comprises four underlying sub-indexes: the S&P Kensho Electric Vehicles Index, the S&P Kensho Autonomous Vehicles Index, the S&P Kensho Advanced Transport Systems Index and the S&P Kensho Drones Index.
Still, investors are getting some palpable EV exposure through HAIL, with Nikola Corp. (NKLA), XPeng, Rivian, Tesla and NIO all featured in the ETF’s top holdings. Based on industry exposure, automobile manufacturers make up around 22% of HAIL, with automotive parts and equipment manufacturers at around 15%. The ETF charges a 0.45% expense ratio.
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7 Best Electric Vehicle ETFs to Buy originally appeared on usnews.com
Update 10/12/23: This story was previously published at an earlier date and has been updated with new information.
