Picking the top EV stocks in the fast growing electric-car race is tough — the universe is mind-numbingly vast beyond just Tesla (TSLA) cars and Tesla stock. But ETFs aim to take out much of the guesswork.
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The stakes are huge on the road to electrifying vehicles. Shares of electric car leader and IBD 50 member Tesla are up more than 700% in a year, racing past the S&P 500’s 57% rise through March 17. China’s electric car champion, Nio (NIO), has seen shares speed up even faster: more than 1,400% in a year’s time.
Tesla Stock Or One Of Its Many Rivals?
But should you own shares of Tesla, Nio stock or other smaller players you’ve never heard of? Are you prepared for the volatility owning such high-octane stocks? Tesla stock and Nio shares are down 0.5% and 8.2%, respectively this year. The S&P 500, on the other hand, is up 5.8%.
Exchange traded funds try to make sure you’re on the right side of the road no matter who wins. The six major ETFs owning EV stocks are up an average 160% in the past 12 months.
“With any early stage industry, there will be a handful of winners and many losers,” says Todd Rosenbluth, head of ETF and mutual fund research at CFRA. “An ETF (can) provide investors with a lower risk approach rather than attempting to identify the best individual stocks.”
Tesla Taps A Hot Market
The EV market is set to boom. The global market for electric vehicles was just $162.3 billion in 2019, says Allied Market Research. That’s 30% less than the combined revenue of Ford (F) and General Motors (GM) last year.
But the EV market is expected to grow nearly 400% to $802.8 billion by 2027. Tight deadlines to cut carbon emissions around the world will make electrification of vehicles more urgent, if not required in some cases.
Wisely taking part of this market could determine stock returns in the future. Tesla stock is the No. 1 bet in the future-focused ARK Innovation ETF (ARKK), which is giving many famous investors a run for their money. Tesla accounts for nearly 11% of the $24 billion-in-assets ETF, which is consistently ahead of the curve.
But what if you want more of an EV play? There are options.
More Than Just Tesla Stock: Sizing Up EV ETFs
The EV market is still nascent. So it’s not surprising the ETFs owning EV stocks vary greatly.
Most investors looking to put EV stocks into their portfolio reach for Global X Autonomous & Electric Vehicles ETF (DRIV). The $811 million-in-assets ETF is more than double the size of its next largest rival: iShares Self-Driving EV and Tech (IDRV).
Interestingly, neither Tesla stock nor Nio stock are top five holdings in the largest EV ETF, though. Tesla stock accounts for just 2.4% of the 77-stock portfolio and Nio is just 1.4%. Global X Autonomous & Electric Vehicles, instead, is highly concentrated on big-cap technology firms with their hands in the market. Alphabet (GOOGL), an early pioneer in mapping and self-driving technology, is the ETF’s top position at 3.5%.
Know What You Own With EV ETFs
Even if an ETF holds a bigger chunk of Tesla stock, you’re still not getting as much pure exposure to the EV market as you suspect. Tesla is the No. 1 position, 4.7%, in the tiny $10.6 million in assets Capital Link NextGen Vehicles & Technology ETF (EKAR).
But “once you get past having a slug of Tesla, it’s Google and Baidu (BIDU) and Nvidia (NVDA) and Intel (INTC), and then a bunch of car companies that are still dominated by their (traditional combustion engine) business,” said Dave Nadig, director of research at ETFTrends.com.
Other ETFs fill different holes. There’s the SmartETFs Smart Transportation & Technology ETF (MOTO), which puts 4.7% of the portfolio in Tesla stock, but holds no Nio. And, most new special purpose acquisition companies, or SPACs, buying promising EV stocks aren’t in the ETFs, either.
ETFs targeting EV stocks could lead to disappointment. The riskier holdings in KraneShares Electric Vehicles and Future Mobility (KARS) sting when EV stocks get hit. The ETF is only up 9.4% this year, which is about half the 15.9% gain in the broader Global X Autonomous ETF.
ETFs owning EV stocks like Tesla stock need to mature, just like electric cars themselves. “So while I think the electrification of transportation is both good and inevitable, I’m not so sure it’s investable in a diversified way,” Nadig said.
Not Your Father’s Tesla Stock
Performance of top ETFs owning EV stocks like Tesla vary wildly
| ETF | Symbol | Stock 12 Month % Ch. | Year To Date % Ch. | Assets ($ Millions) | Expense Ratio |
|---|---|---|---|---|---|
| Global X Autonomous & Electric Vehicles | (DRIV) | 182.8% | 15.9% | $811.0 | 0.68% |
| iShares Self-Driving EV and Tech | (IDRV) | 138.1% | 9.0% | 306.1 | 0.47% |
| SPDR S&P Kensho Smart Mobility | (HAIL) | 229.3% | 18.6% | 222.5 | 0.45% |
| KraneShares Electric Vehicles and Future Mobility | (KARS) | 153.4% | 9.4% | 186.9 | 0.70% |
| SmartETFs Smart Transportation & Technology | (MOTO) | 130.2% | 9.3% | 14.3 | 0.68% |
| Capital Link NextGen Vehicles & Technology | (EKAR) | 153.8% | 9.5% | 10.6 | 0.95% |
Sources: IBD, S&P Global Market Intelligence, ETF.com
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