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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.
Investors looking to capitalize on the growth of the EV industry can invest in two ways: buying individual stocks of companies involved with EVs or buying funds that hold a variety of EV stocks, such as through exchange traded funds, or ETFs.
Electric vehicle statistics
- U.S. sales of electric vehicles topped 250,000 during the first quarter of 2023, according to Cox Automotive.
- The average price of a new electric vehicle was $58,940 in March 2023, according to Kelley Blue Book (KBB), down 9.0 percent from March 2022.
- Tesla had the highest EV market share during the first quarter of 2023 at 62.4 percent, according to KBB.
- General Motors and Ford were second and third, respectively, in the EV market share during the first quarter of 2023, according to KBB.
- Electric vehicles accounted for 7.2 percent of overall new car sales during the first quarter of 2023, KBB found.
- 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 51,000 public EV charging stations across the U.S., according to the U.S. Department of Energy.
- California leads the U.S. with about 14,100 public EV charging stations as of April 2023, according to the U.S. Department of Energy. New York is second with more than 3,200.
- Electric vehicle stocks and ETFs have performed well in 2023 as of April, with Tesla up more than 50 percent year-to-date, though it’s still down more than 40 percent over the previous year.
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.
The EV industry could also face challenges due to rising commodity prices, which could cause the price for EVs to rise, potentially impacting demand. Though prices for lithium, cobalt and copper have fallen recently, they are key inputs into electric vehicles and their prices could impact how fast the industry grows.
Infrastructure for charging EVs will also need to be built out so that travelers can recharge their vehicles quickly, similar to the way gas stations exist today. Future regulation and insurance costs could also impact the ultimate path of the EV industry.
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 62.4 percent market share of EV sales during the first quarter of 2023, 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).
The stock prices of EV makers will ultimately be driven by the results of their underlying businesses. If these companies can grow sales profitably, they’ll likely see their stocks rise over time. But keep in mind that stock prices today reflect future growth expectations, so paying a high price today means you expect and need high growth for the investment to be successful.
The auto industry has historically been a cyclical business, meaning the industry’s sales and profits rise and fall with the overall economy. Buying these companies during cyclical downturns may be a better strategy than buying them when sales and profits are hitting records.
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 more 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
- Declining manufacturing costs over long-term may lead to more affordable pricing
- Government regulations supporting EV industry growth
- Consumers unfamiliar with product
- High prices for investors
- Limited charging stations nationwide could hurt EV sales
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.
In 2021, the Biden administration announced a goal for electric vehicles to represent half of all new auto sales by 2030. EV sales increased by about 45 percent in the first quarter of 2023 to 258,882, according to Kelley Blue Book, a record quarter in the U.S.
A 2022 survey by Consumer Reports revealed that 71 percent of Americans said they’d have at least some interest in buying or leasing an electric vehicle. The interest was mostly driven by potential cost savings, either on gas or maintenance.
However, some 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.
Be sure to research any EV investments thoroughly before making a purchase and consider using ETFs that allow for a more diversified portfolio.
Electric car ETFs are exchange traded funds that hold stocks of companies in the EV industry. These might be EV manufacturers such as Tesla or Rivian, but they could also include suppliers to the EV industry such as BorgWarner or Aptiv. An electric car ETF will rise and fall based on the performance of the underlying stocks it holds.
Investing in the EV industry comes with several risks. Here are some of the major ones to consider:
- Competition: The EV industry is extremely competitive with several well-financed companies vying to become industry leaders. Competition often limits the returns that investors can earn in an industry.
- Valuation: The EV industry has high growth potential, which has led investors to bid up the stock prices of companies in the industry. This creates the risk that investors will overpay for a company’s stock, leading to disappointing or even negative returns.
- Commodity prices: The EV industry could face pressure due to rising costs for certain commodities used in EV manufacturing such as lithium, cobalt and copper. Also, a decline in oil prices could make gasoline more affordable, potentially limiting demand for EVs.
- Economic risk: The auto industry has historically been cyclical in nature. The purchase of a new car is discretionary and often easy to delay if there’s an economic downturn. The EV industry could see a slowdown if the economy were to enter a recession.
The minimum investment required to purchase an electric vehicle ETF is usually the cost of a single share. However, many online brokers now allow customers to purchase fractional shares of ETFs, so you may be able to invest with small amounts of money.
Whether or not electric vehicle ETFs are suitable long-term investments will depend on how the industry develops as well as the goals and risk tolerance of the individual investor. Investing in the EV industry comes with several risks, so it may not be suitable for all investors. On the other hand, investors looking for industries with significant growth potential may find electric car ETFs to be an attractive opportunity.
The unique circumstances of an individual investor will dictate whether it makes sense to invest in electric car companies. Some investors may decide they’re comfortable with the industry’s risks and think its growth potential outweighs them, while others may be turned off by the high valuations and amount of competition. These are the issues investors will have to consider before deciding whether they’d like to invest in the EV industry.
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.