Investor’s guide to electric vehicle ETFs

The transportation industry is in the middle of a massive transformation that could potentially bring trillions of dollars to the global economy. At the center of this shift are electric vehicles (EVs), where the products are designed to be more energy-efficient and connected than traditional automobiles.

The International Energy Agency (IEA) estimates that global consumers spent $425 billion in 2022, marking a 50 percent increase from 2021. While this figure accounts for only about 14 percent of total car sales, the potential for the EV market to expand is compelling.

To date, nearly all major car manufacturers have announced plans to increase EV availability, with some like Jaguar and Volvo planning to phase out gas vehicles within the next decade completely. Similarly, more than 20 countries have announced plans to eliminate gas-vehicle sales over the next 10 to 30 years as part of their sustainability commitments.

All these initiatives could propel the EV industry to new highs.

Why invest in the EV industry?

Over the next decade, the IEA predicts 145 million EV vehicles could be on the road, up from just 10 million today.

To gear up for the increased demand, most of the largest carmakers have vowed to hit electrification targets by 2030, reconfiguring their production lines to build more EVs.

For example, Ford says it plans to invest $30 billion in electrification efforts by 2025, pledging that by mid-2026, 100 percent of its passenger vehicles in Europe will be zero-emissions capable, moving to all-electric by 2030. By then, the company predicts that 40 percent of its global sales will be fully electric vehicles.

Likewise, General Motors, the largest U.S. automaker, announced plans to invest $35 billion in electric and autonomous vehicles over the next five years, offering 30 all-electric models globally by 2025. In addition, the company plans to be carbon neutral in its products and operations by 2040.

But it’s not just commercial vehicles. Truck manufacturers such as Daimler, Renault, Scania, MAN and Volvo are also pursuing emission-free driving efforts by expanding the range of EV models available, from long-haul freight to garbage collection trucks.

As availability for EV increases and economies of scale materialize – potentially bringing down production and battery costs – S&P Global forecasts that over one in four new passenger cars sold will be an electric vehicle by 2030.

However, consumers have been slower to embrace electric vehicles than some expected due to concerns about access to charging stations and available range on a single charge, among other issues. Some automakers have been forced to reset their EV goals. 

Driving towards a sustainable future

As part of a collective push to reduce our footprint on the environment, policymakers in the United States, China, the European Union and other regions around the globe are implementing mandatory targets and policies in an effort to lower CO2 emissions in the transportation sector.

In the U.S., for example, the Biden administration issued a new rule that would require the majority of new passenger car and light truck sales to be electric vehicles or hybrids by 2032.

According to the Environmental Protection Agency (EPA), transportation accounts for about 29 percent of greenhouse gas emissions in the U.S. The EPA estimates that removing one gas-fueled vehicle from the road can prevent roughly 4.6 metric tons of carbon dioxide from infiltrating the environment each year.

Top electric vehicle ETFs

Like other thematic investing types — such as blockchain technology, cybersecurity and real estate — one easy way individual investors can gain exposure to EVs is through exchange-traded funds (ETFs).

Essentially, an electric vehicle ETF holds a basket of publicly traded stocks in the industry. These companies can either directly manufacture electric vehicles, automotive parts or provide services that support the evolution of electric cars.

This niche area of the ETF market remains relatively uncrowded, with only a handful of players in the space. Before investing, consider reviewing the fund’s prospectus to better understand the investment strategy, holdings and fees.

(Data below is as of April 1, 2024.)

iShares Self-Driving EV and Tech ETF (IDRV)

The fund invests in global companies that produce electric vehicles, autonomous driving cars, batteries and other products and services that support the industry.

• Fund issuer: BlackRock
• Year-to-date return: -12.4 percent
• Assets under management: $257.7 million
• Expense ratio: 0.47 percent
• 2023 performance: 7.9 percent

Global X Lithium & Battery Tech ETF (LIT)

The fund invests in global companies involved in the mining and exploration of lithium and the production of lithium batteries.

• Fund issuer: Mirae Asset Global Investments
• Year-to-date return: -10.5 percent
• Assets under management: $1.7 billion
• Expense ratio: 0.75 percent
• 2023 performance: -12.2 percent

Global X Autonomous & Electric Vehicles ETF (DRIV)

The fund invests in companies related to the development of autonomous vehicles, EVs and EV components and materials. It seeks to match the price and yield performance of the Solactive Autonomous & Electric Vehicles Index.

• Fund issuer: Mirae Asset Global Investments
• Year-to-date return: 0.24 percent
• Assets under management: $605.8 million
• Expense ratio: 0.68 percent
• 2023 performance: 26.1 percent

SPDR S&P Kensho Smart Mobility ETF (HAIL)

The fund seeks to generate investment results that track the S&P Kensho Smart Transportation Index. Companies in the index are involved in creating products and services related to smart transportation and the fund’s holdings include companies such as Nvidia, Lyft, Allison Transmission Holdings and General Motors.

• Fund issuer: State Street Global Advisors
• Year-to-date return: -4.1 percent
• Assets under management: $37.5 million
• Expense ratio: 0.45 percent
• 2023 performance: 9.7 percent

Amplify Lithium & Battery Tech ETF (BATT)

The fund invests in companies that generate significant revenue from the development, production and use of lithium battery technology, including electric vehicles. It seeks to generate investment results that are generally in line with the EQM Lithium & Battery Technology Index. Top holdings include Tesla, BYD Co., and Glencore.

• Fund issuer: Amplify Investments
• Year-to-date return: -10.5 percent
• Assets under management: $90.0 million
• Expense ratio: 0.59 percent
• 2023 performance: -7.1 percent

Risks of electric vehicle ETFs

According to the IEA, the growth and impact of the EV industry depend heavily on how successful policymakers are in developing a comprehensive framework that supports the industry.

Apart from EV adoption rates, the decarbonization of electricity generators and building a global charging network, for example, are fundamental. But, beyond those efforts, shifting to sustainable business practices, such as efficient waste management, will also be crucial for long-term success.

From electric-vehicle makers like Tesla (TSLA) and NIO (NIO) to semiconductor producers like NVIDIA (NVDA) and Intel (INTC), to cloud providers like Microsoft (MSFT) and Amazon (AMZN), many of these names will be essential for ensuring vehicle safety, intelligence, and efficiency in the emerging space.

Also, investors should pay close attention to valuations on EV-related stocks, which may easily become stretched in such a hot sector. That’s especially true for individual stocks but can also apply to ETFs. While a diversified sector ETF can help protect you against blow-ups in individual stocks, it won’t protect you against a sector-wide fall, if valuations on EV stocks come down.

Note: Bankrate’s Brian Baker contributed to an update of this story.

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.