Investing in Electric Vehicles and Green Transportation

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

This article 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 investors should not ignore the shift toward electric vehicles and green transportation.
  • Investment approaches range from directly buying shares of electric vehicle manufacturers to more indirect methods like investing in manufacturers of key materials or components.
  • Investors seeking diverse exposure to the electric vehicle industry could evaluate the various exchange-traded funds (ETFs) with this theme 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 form a theme that is dominating the mission statements of nearly every major automotive manufacturer worldwide.

Furthermore, the shift toward carbon neutrality goes beyond passenger vehicles; it's 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 U.S. clean transportation technology nonprofit CALSTART that 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 U.S. on a path of emissions reduction by signing an executive order that set out targets to make 50% of all new passenger cars and light trucks sold in 2030 be zero-emissions vehicles. As the U.S. and other governments around the world start action on their visions for a cleaner future, the 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 effect societal-level changes that will greatly influence financial markets for generations.

In 2022, Congress passed the Inflation Reduction Act (IRA), a more than $430 billion spending package aimed at boosting domestic energy production and manufacturing, while also reducing carbon emissions by roughly 40% by the year 2030. Under the new law, individuals would receive tax credits on the purchase of electric vehicles of up to $7,500 for new EVs and up to $4,000 for a used electric car. These credits, however, would be subject to restrictions in terms of the price of the vehicle bought and subject to limitations on the purchaser's income.

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 makers of integral components used in the creation of the vehicles.

Pure-Play Electric Vehicle Manufacturers

Relatively few publicly traded automotive manufacturers focus strictly on electric vehicle production, 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, Tesla CEO Elon Musk, has proclaimed that he wants to increase Tesla’s vehicle sales volume to 20 million annually "probably before 2030." The leadership and innovation shown by Tesla in recent years is one 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 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 becoming dominant players in this segment. The examples below illustrate some of the initiatives being taken by carmakers.

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 vehicle 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% of BMW Group cars as electric vehicles by 2025—a number that the company projects to grow to 50% by 2030. To get a sense of scale, BMW will seek to build 10 million electric vehicles over the next 10 years.

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

Ford Motor Co. (F) is also adopting 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 and the F-150 Lightning pickup truck. The application of electric technology to heavier vehicles such as trucks and buses is still in the early stages, but this type of announcement can be seen as an indication that the shift has started.

Integral Components to Electric Vehicle Production

There are many indirect ways to gain investment 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 because 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 boost U.S. efforts to lead in the electric future. The action plan outline steps that 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 in coming decades, it is important to recognize the investment opportunities that exist for charging stations and various power management solutions that are currently available or being developed.

Exchange-Traded Funds (ETFs)

Investors who are seeking diverse exposure to the electric vehicle industry could be interested in one of the various exchange-traded funds (ETFs) available. Depending on investors’ goals, ETFs can range from those strictly focused on electric vehicles and their integral components to those 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

Though electric vehicles have been around for a while, increased competition, rapid changes in technology, and current government priorities suggest that the future of transportation is undoubtedly electric. Investors can find a multitude of ways to gain exposure to electric vehicles and green transportation. Some investors may choose to buy shares in established pure-play electric auto manufacturers, while others may be interested in what the newer players are working on. Others can research the manufacturers of key EV components, such as batteries and sensors, or even the materials those are made of. Investors who want to take a more diversified approach may want to look into targeted ETFs that embody these themes.

Regardless of one’s investment style, there is ample opportunity for investors when it comes to the future of electric vehicles and green transportation.

Article Sources
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  2. Global Commercial Drive to Zero Program. “Global Memorandum of Understanding on Zero-Emission Medium- and Heavy-Duty Vehicles.”

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  4. U.S. Senate. "Summary: The Inflation Reduction Act of 2022."

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