How to invest in electric cars
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The electric vehicle, or EV, market has grown substantially in recent years and it’s expected to continue its rise over the next decade and beyond. As government regulations limiting carbon emissions increase, automakers have been forced to shift their attention to electric cars.
Many companies are vying to get a piece of the EV market, from the automakers themselves to those that supply parts and components used in EVs. The potential for growth makes the EV industry attractive to investors, but success is far from guaranteed.
Electric vehicle statistics
- U.S. sales of electric vehicles topped 200,000 during the third quarter of 2022, according to Kelley Blue Book (KBB).
- The average price of a new electric vehicle was $65,291 in September 2022, according to KBB, up 9.7 percent from September 2021.
- Tesla had the highest EV market share during the third quarter of 2022 at 64 percent, according to KBB.
- Ford and General Motors were second and third, respectively, in the EV market share during the third quarter of 2022, according to Auto Advocate.
- In 2021, the Biden administration announced a goal for electric vehicles to represent half of all new auto sales by 2030.
- There are more than 48,000 public EV charging stations across the U.S., according to the U.S. Department of Energy.
- California leads the U.S. with about 13,600 public EV charging stations as of November 2022, according to the U.S. Department of Energy. New York is second with more than 3,000.
- The average EV owner is typically a 40-55 year old male with annual household income above $100,000, according to the Fuels Institute.
Investing in electric vehicles: What does the market look like?
The electric vehicle market has grown significantly over the past decade. In 2012, only 120,000 electric vehicles were sold globally, according to the International Energy Agency. In 2021, global EV sales reached 6.6 million vehicles. Recent growth has largely been driven by China, which accounted for 3.3 million EV sales in 2021, more than were sold in the entire world in 2020.
Investing in electric vehicles
Top 5 EV companies:
- Tesla (TSLA)
- Ford (F)
- General Motors (GM)
- Volkswagen (VWAGY)
- Nissan (NSANY)
All five of these companies offer electric vehicles, with Tesla being the clear market leader. Tesla held a 64 percent market share of EV sales during the third quarter of 2022, according to Kelley Blue Book. Its Model 3 and Y vehicles combine to account for nearly 60 percent of EV sales in the U.S.
Tesla is unique in that it focuses on electric vehicles exclusively, whereas other automakers such as Ford and General Motors still produce gas-powered vehicles. These legacy manufacturers are looking to ramp up their production of EV vehicles in the coming years in order to meet regulatory requirements and capitalize on growing demand for EVs.
Other EV manufacturers include Rivian Automotive (RIVN), NIO (NIO), Li Auto (LI) and Nikola (NKLA).
While the potential for future growth is attractive to investors, the EV industry is not without risks. High-growth industries often attract lots of competition that can hurt the returns investors ultimately earn. Stock prices can also be overpriced in exciting new industries, causing investors to overpay for growth that may or may not materialize. Be sure to understand the companies you’re investing in before making a purchase, or consider choosing a diversified portfolio available through an electric vehicle ETF.
Investing in electric vehicle suppliers
Companies to consider:
- BorgWarner (BWA)
- BYD (BYDDY)
- Albemarle (ALB)
- Aptiv (APTV)
Another way to invest in the EV market is to focus on companies that supply a number of different EV makers, which means you don’t have to predict which manufacturer will be the ultimate champion. Companies such as BorgWarner and Aptiv supply different components used in EVs, while BYD produces rechargeable batteries in addition to making EVs themselves. Albemarle, on the other hand, is a specialty chemicals company that produces lithium compounds used in lithium batteries, which are used in EVs, among other products. These companies should see their sales tied to EVs grow as the overall level of demand for EVs continues to increase.
Just as with the pure EV makers, suppliers to EV companies can get bid up to prices that make it difficult for investors to earn attractive returns. Growth doesn’t always materialize as quickly as investors hope and there can be bumps in the road. Shortages that lead to high prices for components today can shift to periods of oversupply and falling prices.
Pros and cons of investing in electric vehicles
|Growing industry||Consumers unfamiliar with product|
|Declining manufacturing costs over long-term may lead to more affordable pricing||High prices for investors|
|Government regulations supporting EV industry growth||Limited charging stations nationwide|
One of the major benefits of investing in the EV industry is the tailwind provided by changing government regulations that limit carbon emissions and push automakers to focus on electric vehicles. This will likely lead to growth for the overall EV market for many years to come.
However, many consumers are skeptical of electric vehicles and are hesitant to purchase one. People have been driving gas-powered vehicles for a long time, so it could take years before they’re comfortable with an EV.
There’s also the challenge of where to charge an EV if you drive on a long trip. While many people will charge their EVs at home during the night, longer trips will require a large network of recharging stations to be built similar to the way gas stations exist today. How quickly this network can get built, may go a long way in determining how quickly EVs are adopted by consumers.
The electric vehicle industry has the potential to reward investors in the coming years. It has tailwinds that will likely propel it to continued growth as more consumers switch to electric vehicles over time. However, growth alone isn’t enough to produce a strong investment. It’s not always clear who the winners will be, or whether the industry as a whole will earn attractive returns on capital, or if EV stocks can be purchased at attractive prices.
Be sure to research any EV investments thoroughly before making a purchase and consider using ETFs that allow for a more diversified portfolio.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.