Top EV ETFs Breakdown

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I started my professional career in the automotive industry long before electric vehicles were a thing despite Tesla already existing. If you didn’t know, Elon founded Tesla back in 2003. The company was not on anybody’s radar until Model S came out nine years later in 2012. It is interesting to work in an industry that has denied the coming of EVs for the longest time. Some can argue that they still do to this day. Established car companies said, why don’t we let Tesla and other EV companies test out the market? And we will enter once it matures. We are experiencing this transition right now, with more and more manufacturers coming out with their version of EVs. Electrification is a big theme in the industry today. We, as investors, can consider taking advantage of the ongoing trend and position our portfolios slightly more towards that trend. The easiest way to do that is with EV ETFs. I want to break down the most popular EV ETFs today and see if they make a good investment.

Global X Lithium & Battery Tech ETF – LIT

There wouldn’t be electric vehicles without Lithium-Ion batteries. The investment thesis here is fairly straightforward: More EVs in the future will require more lithium-ion batteries. Thus, demand for Lithium will go up. Therefore, invest in lithium producers.

Is Lithium hard to find?

Not really. Current production levels are estimated to require close to 100,000 tons of lithium per year. Total global reserves are estimated to be around 14 million tons. Source: Lithium mining: What you should know about the contentious issue. In addition, battery recycling technology is getting better and better.

That doesn’t mean, however, that lithium is easy to extract as it doesn’t just sit on the earth’s surface. We have to mine it. So overall, investing in Lithium producers makes sense if they offer good value.

LIT is the biggest ETF in the space with over $4.8B under management.

What are we buying when we buy LIT?

LIT Top 10 Holdings

27% of the ETF is in three companies – Albemarle Corp, Yunnan Energy, Ganfeng Lithium.

Yunnan is a chemicals company in China that you cannot easily invest in on your own. The same goes for Ganfeng Lithium.

If you are okay with relatively unknown Chinese stocks as part of your holdings, let’s take a look at LIT’s performance over the years.

LIT Historical Performance

If you are okay with relatively unknown Chinese stocks as part of your holdings, let’s take al look at LIT’s performance over the years.

Since inception, a hypothetical $10,000 investment in LIT in July 2010 would turn into roughly $25,000 today, compared to $83,000 if you invested in NASDAQ-100 Index ETF, QQQ.

LIT’s annualized return turns out to be 8.86% compared to 20.88% with QQQ.

The lowest point for LIT was in 2016. Over the six year period, the combined value of your investment would have dropped by over 46%.

LIT Volatility

LIT’s volatility, represented by the annualized standard deviation of monthly returns, is also significantly higher than the S&P500.

Expense Ratio

Global Lithium ETF LIT is also quite expensive with 0.75% Expense Ratio compared to Vanguard’s Materials ETF – VAW and NASDAQ-100 ETF QQQ.

LIT ETF Pros & Cons

Pros

  • Ability to invest in stocks that are otherwise inaccessible to retail investors in North America.
  • Strong momentum and AUM growth in anticipation of increased demand for lithium.
  • Incredible 1Y, 3Y and 5Y historical returns.
  • Cons

  • Not a pure EVs ETF.
  • Significant exposure to Natural resources/materials sector.
  • Over 70% exposure to the Asian markets.
  • Expensive ETF relative to peers.
  • Top 10 holdings represent a high percentage of overall assets.
  • High volatility.
  • High turnover compared to peers.
  • Let’s take a look at a more pure EV ETF.

    Global X Autonomous & Electric Vehicles ETF – DRIV

    The Global X Autonomous & Electric Vehicles ETF (DRIV) seeks to invest in companies involved in the development of autonomous vehicle technology, electric vehicles (“EVs”), and EV components and materials.  This includes companies involved in the development of autonomous vehicle software and hardware, as well as companies that produce EVs, EV components such as lithium batteries, and critical EV materials such as lithium and cobalt.

    DRIV is smaller than Lithium-focused ETF – LIT with just over one billion under management.

    What are we buying when we buy DRIV?

    DRIV Top 10 Holdings

    DRIV’s Top 10 holdings include Tesla, okay, but also Google, Microsoft, Apple, and Qualcomm. That doesn’t sound remotely close to electric vehicles. The fund’s description states that it invests in companies developing autonomous vehicle software and hardware. So I guess having NVIDIA, which develops technology around computer vision, makes sense. Apple? Doesn’t make as much sense. Apple is working on car technology, but it does not generate any revenue for them yet, and it is doubtful it will be a significant revenue driver any time soon.

    So similar to Lithium ETF, the purity of how much actual electric vehicle technology you get with DRIV is questionable.

    DRIV Historical Performance

    Since inception, a hypothetical $10,000 investment in DRIV in April 2018, would turn into roughly $18,500 today, compared to $23,670 if you were to invest in NASDAQ-100 ETF – QQQ instead.

    DRIV’s annualized return turns out to be 19.642% compared to 19.42% with QQQ.

    The lowest point for DRIV was during the beginning of COVID in 2020, when the market dropped as a whole, so it is not a surprise.

    The historical period is too short of drawing any meaningful conclusions. Also, if you notice how closely DRIV follows NASDAQ-100. That is because the majority of DRIV’s holdings are the most popular technology companies.

    DRIV Expense Ratio

    The expense ratio for DRIV is 0.68%. Slightly cheaper than LIT but more expensive compared to QQQ.

    DRIV ETF Pros & Cons

    Pros

  • Incredible 1Y, 3Y, and 5Y historical returns. But not necessarily because the ETF achieved something extraordinary, and the ETF greatly benefited from the technology bull run that we are still experiencing today.
  • Strong AUM growth compared to the competition
  • Actual electric manufacturer holdings & related technology.
  • Cons

  • High percentage of companies make the majority of revenue that is not related to EV or Autonomous driving technology. Ex. Apple.
  • Expensive relative to peers
  • High exposure to the technology sector. You could buy QQQ, which is cheaper and has been a better performer.
  • High volatility.
  • Low dividend yield compared to peers.
  • KraneShares Electric Vehicle and Future Mobility ETF – KARS

    Definitely the longest ETF name on the list, hopefully it will live up to the name.

    Fund’s strategy is the following:

    The investment seeks to provide investment results that, correspond to the price and yield performance of the Bloomberg Electric Vehicles Index. The fund will invest at least 80% of its total assets in components of the index, depositary receipts, representing such components, securities underlying depositary receipts in the index and instruments. The index is designed to track the equity market performance of companies engaged in the production of electric vehicles or their components or in other initiatives that may change the future of mobility, as determined by index provider.

    KARS’ assets under management are smaller than LIT or DRIV at just over $260 million.

    What are we buying when we buy KARS?

    KARS Top 10 holdings

    Quick look at the top holdings and it looks like KARS is the closest ETF to actually have heavy weighting in automakers as well as semiconductor & other technology companies that are directly related to the EV industry.

    KARS Historical Performance

    Since inception, a hypothetical $10,000 investment in KARS in January 2018 would turn into roughly $18,800 today, compared to $22,570 if you were to invest in NASDAQ-100 ETF – QQQ instead.

    KARS’s annualized return turns out to be 18.71% compared to 24.62% with QQQ over this period.

    The lowest point for KARS, similar to all other EV ETFs, was during the beginning of COVID in 2020, when the market dropped as a whole, so it is not a surprise.

    Similar to DRIV, history is too short to derive any meaningful insights.

    KARS Expense Ratio

    The expense ratio for KARS is 0.70%.

    KARS ETF Pros & Cons

    Pros

  • Strategy closer resembles EV investing than other EV ETFs
  • Top 10 holdings represent a lower percentage compared to other EV ETFs
  • Strong 3Y and 1Y returns
  • AUM growth outpaces the competition
  • Ability to invest in automakers that do not trade on US stock exchanges
  • Cons

  • Expensive ETF
  • High volatility
  • Low dividend yield
  • Very high asset turnover
  • Best EV ETF investment

    If you are interested in pursuing an EV-focused investment strategy, I believe Global X Lithium & Battery Tech ETF – LIT and KraneShares Electric Vehicle and Future Mobility ETF – KARS put together would give you the best combination. There will obviously be some overlap like in Tesla but also enough diversity to have exposure to the natural resources & materials sector and the technology sector.

    LIT will give you investments in foreign lithium and other crucial materials producers that are difficult to buy if you are a North American citizen.

    KARS will give you investments in foreign automakers innovating in the EV space, and it is not all about Tesla.

    This brings me to one potential downside of this strategy. Hefty overweight in Tesla stock. Thus, we must pose the question:

    Is Tesla a good investment today?

    If you decide to invest in any of the discussed ETFs or do a combination of them, Tesla will be your #1 holding.

    Tesla is quite an old company that only recently started posting positive earnings. That is not a problem per se; through its history, Tesla has built remarkable EV infrastructure and arguably the best electric vehicle on the market. However, from a financial operations perspective, it is no secret that it is a horribly mismanaged company. Again, this was not a problem, but now with other manufacturers maturing in the EV space, they are able to be more nimble without massive debt overhang and strong earnings and cash flow from their ICE vehicles.

    I don’t want to turn this into a Tesla stock analysis but quickly summarize what analysts are saying about it today and what key concerns are.

    Tesla has 33 analysts covering the stock. 11 are Very Bullish on the stock. 3 Bullish and 11 are Neutral. 8 are bearish or very bearish.

     

    Analyst price target is 13% below current price.

    Tesla is trading at a hefty premium to earnings. Current Tesla PE is at 412.

    ✅ Tesla Investment Pros

  • Energy storage business is growing
  • Oil & Gas prices have been rising, putting pressure on ICE vehicles, even fuel-efficient ones
  • Superior product especially compared to newer Chinese EV manufacturers
  • Loyal fan base
  • Company is finally showing positive earnings
  • ❌ Tesla Investment Cons

  • Rising reliance on the Chinese market that imposes regulation risk from the Chinese government
  • Competition is gearing up to enter the EV market with products that are not as inferior as Tesla hopes
  • Competition within China will greatly impact Tesla’s future
  • At current prices, many see Tesla as too expensive and not worth the price
  • Despite energy business growth, it is a money-losing operation
  • EV ETFs not worth it if you only like select companies

    Overall, EV ETF offerings are expensive but they do offer you good exposure to companies that are hard to find otherwise. But if you are only interested in a handful of EV makers and related technologies, you might be better off just investing in those stocks separate from ETFs and save on the yearly expense.

    This, of course, will come with decreased diversification & will require a bit more research, but it could be a worthwhile endeavour.

    Happy Investing!

    Top EV ETFs Breakdown

    I started my professional career in the automotive industry long before electric vehicles were a thing despite Tesla already existing.

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