Investing in Electric Vehicles and Green Transportation

The first company to come to the minds of many people when it comes to electric vehicles is Tesla, Inc. (TSLA). While Tesla has deservedly earned its reputation as the leader in the field, there have been rapid advancements in technology as well as a global prioritization of reducing emissions. This means that there are now many more ways for investors to gain exposure to electric vehicles and green transportation than there were when Tesla's first production vehicle rolled off the factory floor in 2008.

In this article, we will look at the spectrum of investment approaches ranging from directly buying shares of electric vehicle manufacturers to more indirect routes such as investing in manufacturers of key materials or components.

Key Takeaways

  • Rapid advancements in technology and global prioritization of reducing emissions mean that the shift toward electric vehicles and green transportation is one that investors should not ignore.
  • Investment approaches range from directly buying shares of electric vehicle manufacturers to more indirect routes such as investing in manufacturers of key materials or components.
  • Investors who are seeking diverse exposure to the electric vehicle industry could be interested in one of the various exchange-traded-funds that are currently available

Reducing Carbon Emissions

Whether as part of the COP26 declaration on accelerating the transition to 100% zero-emission cars and vans, or a separate agreement, plans to become carbon neutral over the next several decades is a theme that is dominating the mission statements of nearly every major automotive manufacturer around the globe.

Furthermore, the shift toward carbon neutrality goes beyond passenger vehicles and is a primary focus across the entire transportation sector. For example, in 2021, several countries, subnational governments, and vehicle manufacturers signed a memorandum of understanding (MOU) initiated by CALSTART, which calls for all new sales of medium- and heavy-duty vehicles such as trucks and buses to produce zero emissions by 2040 with interim goals along the way.

In August 2021, President Biden set the United States on a path of emission reduction by signing an executive order that set out targets to make 50 percent of all new passenger cars and light trucks sold in 2030 be zero-emissions vehicles. As the United States and other governments around the world start action their visions for a cleaner future, the burgeoning wave of momentum will not be one that investors can ignore. The sheer amount of investment and changes to be made over the next several decades will have societal-level changes that will greatly influence financial markets for generations.

Equities

Investors who want to gain exposure to the electric vehicle and green transportation segments can turn to various types of companies on the major exchange. The spectrum of options ranges from pure-play electric automotive manufacturers to manufacturers of integral components used in the creation of the vehicles.

Pure-Play Electric Vehicle Manufacturers

There are relatively few publicly traded automotive manufacturers that strictly focus on the production of electric vehicles, but the number is growing. Again, the most popular is Tesla, which announced a record number of quarterly deliveries of 308,600 electric cars in Q4 2021. In 2021, the company delivered 936,172 vehicles.

Via Twitter, Elon Musk has proclaimed that he wants to increase Tesla’s vehicle sales volume to 20 million annually over the next nine years. The type of leadership and innovation shown by Tesla in recent years is a clear reason why it is part of nearly every discussion related to the future of electric vehicles. Some other examples of pure-play electric vehicle manufacturers include but are not limited to Rivian Automotive, Inc. (RIVN), NIO Inc. (NIO), and Lucid Group, Inc. (LCID).

Established Automotive Manufacturers

As mentioned, major automotive manufacturers have quickly adapted to the shift toward electric-mobility and are quickly becoming dominant players in this segment. The examples provided below are for illustrative purposes only, but in this author’s opinion, it is relatively safe to extrapolate similar ambitions onto other major automotive manufacturers not listed here.

In January 2021, General Motors (GM) announced its plans to be carbon neutral by 2040 and has committed to science-based targets to achieve carbon neutrality. The company announced that over the next five years, it will invest $27 billion in electric and autonomous vehicles development and production. The money will be targeted at continued development of its battery technology, updating facilities, and various manufacturing components.

BMW Group (BMWYY), plans to have 13 fully electric vehicles available by 2023, which would put the company on track to deliver 25 percent of BMW Group cars as electric vehicles by 2025 – a number that the company projects to grow to 50 percent by 2030. To get a sense of scale, BMW will seek to build 10 million electric vehicles over the next 10 years.

Toyota Motors (TM) is looking to invest approximately $35 billion into battery-powered electric vehicles and roll out 30 models by 2030. The company is aspiring to increase global sales of battery-powered electric vehicles by 3.5 million units per year by 2030.

Ford Motor Company (F) is also adapting an electric vehicle approach and will be investing $22 billion in electrification through 2025. Aside from various products currently available such as the all-electric Mustang Mach-E and E-Transit van, the market is getting excited about the release of the F-150 Lightning, which is set to arrive in the spring of 2022. The application of electric technology toward heavier vehicles such as trucks and busses is still very much in the early stages, but this type of announcement is an early indication that the shift has started. Related, plans to kick off high-volume production of Tesla’s cybertruck has been postponed until 2023.

Integral Components to Electric Vehicle Production

There is a multitude of indirect ways to gain exposure to the production of electric vehicles. A few examples include semiconductor chips, light detection and ranging sensors, batteries, and the various materials needed to make everything work seamlessly together. Moving down the supply chain, investors may even be interested in adding exposure to lithium and cobalt miners since these metals play a key role in current battery technology.  

Infrastructure

In December 2021, The White House released the Biden-Harris Electric Vehicle Charging Action Plan. The plan is to supercharge America’s efforts to lead in the electric future. The action plan outline steps federal agencies are taking to support developing and deploying chargers in American communities across the country. Given the number of electric vehicles that will be on the roads over the coming decades it is important to recognize the investment opportunities that exist when it comes to the role or charging stations and various power-management solutions that are currently available, being developed, and those that are still in the pipeline.

ETFs

Investors who are seeking diverse exposure to the electric vehicle industry could be interested in one of the various exchange-traded funds that are currently available. Depending on investors' goals, ETFs can range from those strictly focused on electric vehicles and their integral components to those that are more broadly focused on innovative technologies. For illustrative purposes, here is a sample of ETFs currently available:

· Global X Autonomous & Electric Vehicles ETF (DRIV)
· iShares Self-Driving EV and Tech ETF (IDRV)
· KraneShares Electric Vehicles and Future Mobility Index ETF (KARS)
· Global X Lithium & Battery Tech ETF (LIT)
· SPDR S&P Kensho Smart Mobility ETF (HAIL)

The Bottom Line

Electric vehicles have been around for quite some time already, but increased competition, rapid changes in technology, and current government priorities suggest that the future of transportation is undoubtedly electric. Investors are presented with a multitude of ways to gain exposure to electric vehicles and green transportation. As discussed above, some investors may choose to buy shares or pure-play electric auto manufacturers, while others may be interested in what the established players are working on. Those keen on doing their own research may be interested in the manufactures of key components such as batteries and sensors or even the materials that they are made of. Those who want to take a more diversified approach may want to look to one of the targeted exchange-traded funds. All said, regardless of one’s investment style, there is ample opportunity for all types of investors when it comes to the future of electric vehicles and green transportation.

Article Sources

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  2. CALSTART. "Global Memorandum of Understanding on Zero-emission Medium- and Heavy-duty Vehicles."

  3. The White House. "Executive Order on Strengthening American Leadership in Clean Cars and Trucks."

  4. Tesla Investor Relations. "Tesla Q4 2021 Vehicle Production & Deliveries."

  5. Twitter. "Elon Musk, Sept. 28, 2020, 3:48 PM."

  6. General Motors Corporate Newsroom. "General Motors, the Largest U.S. Automaker, Plans to be Carbon Neutral by 2040."

  7. BMW Corporate. "Future Vision: A Look at Where We Are Heading."

  8. Xe. "Convert Japanese Yen to US Dollars."

  9. Toyota Global. "Minutes from Media Briefing on Battery EV Strategies on December 14, Question and Answer," Page 2.

  10. Toyota Global. "Video: Media Briefing on Battery EV Strategies."

  11. Ford. "The Ford Electric Vehicle Strategy: What You Need to Know."

  12. Reuters. "Tesla's Musk Sees Cybertruck Production Delayed to 2023."

  13. The White House. "Fact Sheet: The Biden-⁠Harris Electric Vehicle Charging Action Plan."

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