As socially responsible investing continues to grow more popular, electric vehicles have emerged as a favorite for environmentally conscious investors. Electric vehicles or EVs offer a solution to car and truck emissions, which collectively make up about a quarter of all greenhouse gases. The impact and threat of climate change have turned EVs into a booming market for both consumers and investors alike. Electric car investing can be done in a variety of ways, including buying stock in EV automakers or funds that invest in EV-related companies.
If you’re looking to add socially responsible investments to your portfolio, consider working with a financial advisor.
What Are Electric Cars?
An electric car is any car that uses an electric motor rather than an internal combustion engine for propulsion. Combustion engines create power by using controlled explosions of a fuel, normally hydrocarbon based, to move pistons. Electric motors, on the other hand, use electricity that’s typically drawn from a battery to power rotating magnets that move the car forward.
An electric car’s motor relies on the same basic technology that powers your desk fan. They use conductive materials that, when exposed to a rotating magnetic field, respond by moving within the field. An electric car uses its battery to oscillate a magnetic field, which presses against the rotors inside the motor, which in turn power the wheels. The basis of this technology matters to investors, as noted below, because this creates a need for specialized materials.
While engineers have made electric motors more powerful and more efficient, electric cars became true consumer products thanks to advancements in battery technology. These cars need an enormous amount of power to operate, and it’s only been within the last 20 years or so that companies could build batteries capable of storing that kind of energy.
This development, along with significant government subsidies, has created a booming market for electric cars. In 2022, electric car sales increased 60% according to Car And Driver Magazine. While estimates range within a small window, around 5% of all new car sales in the U.S. are now for electric vehicles and most analysts expect that number to increase substantially over the next decade.
This market gets even more exciting for globally oriented investors, given that in wealthy countries like Norway, up to 80% of all new cars are electric.
In other words, a combination of technology, government policies and culture have come together to make this a strong and growing market.
What Companies Make Electric Cars?
At this point just about all major automakers either have or have announced a line of electric vehicles.
In the United States, Tesla still dominates the electric car market. Most estimates suggest that the company is responsible for about two-thirds of electric car sales, which are 5.5 times higher than the next largest competitor. But that arguably has more to do with history than anything else. Until recently, Tesla was effectively the only mainstream electric car company on the market. It has the brand, the reputation and the established product.
That’s changing. Tesla’a next largest competitor, Chevrolet, sells the increasingly popular Bolt. Toyota has its hybrid Prius, and Kia has gotten into the game with the EV6. Perhaps most importantly, Ford has released its F-150 Lightning, an all-electric version of the most popular vehicle in America.
For the time being the market does belong to Tesla and its high-end, high-technology vehicles. In part, that’s because all electric cars remain quite expensive, with starting prices between $40,000 to $50,000 for even low-end models. But that will likely change as automakers reach for a broader consumer base.
Beyond individual consumers, there is also the commercial market. These are the companies that make electric trucks and vans, primarily intended for commercial use. Emerging companies like BYD and Rivian occupy this space, with Rivian being particularly successful due to a deal with Amazon Prime. In terms of legacy firms, Daimler, Peterbilt and Volvo have begun to compete for the electric truck market, as well.
How To Invest In Electric Cars
When investing in any technology, there are always a few different entry points. Here’s a look at the most common ways to invest in EVs:
The most direct way to invest in any technology is to purchase stock in the companies that make those products. As a result, you could buy stock in companies that manufacture electric vehicles.
While Tesla (TSLA) is the most prominent EV company, it’s been a particularly volatile stock in recent years. In 2019, Tesla stock was valued at around $15 per share. The price shot up to $407 per share by late 2021 and has recently fallen to approximately $173 by the end of January 2023.
You can also buy into legacy manufacturers. By sales, the next largest EV manufacturers listed on a U.S. exchange are General Motors (GM), Toyota (TM), Honda (HMC) and Ford (F).
Commercial EV manufacturers are another direct investment option. Aside from the legacy firms like Peterbilt (PCAR), many of these companies are startups. However, they’ve been around long enough that some have started to go public. Companies like Rivian (RIVN) are options for investment if you’re interested in the commercial side (although Rivian also produces SUVs and pickup trucks for consumers, too).
Automakers are known for their vast network of suppliers, and electric cars are no different. This means that one way to invest in the EV market can be through the companies that supply automakers with motors, parts, and above all else, batteries.
The difficult thing here is access. Most electric cars rely on parts sourced from other countries, particularly Korea and China. Companies tend to source their batteries from Chinese manufacturers such as CATL, BYD and LG Energy Solution. However, there are many more companies getting into this field, including surprising ones like NVIDIA (NVDA), which is traditionally known for its graphics cards but has been working on self-driving technology.
Investing in individual stocks is a double-edged sword. The advantage is that you can really benefit from a company’s potential gains. Investors who held Tesla stock going into Christmas 2019 saw 2,700% returns while diversifying would have diluted those gains.
But investors who held Tesla stock going into Christmas 2021 saw a two-thirds collapse by winter 2023. Diversifying could have mitigated those losses. Investing in a fund can protect you from the worst of a company’s losses.
For investors who want to take advantage of that security, there are a range of ETFs and mutual funds that focus on the electric vehicle market. Some funds focus on technology, like the Global X Lithium and Battery Technology ETF. Others invest in carmakers, like the iShares Electric Vehicles and Driving Technology ETF. Owning mutual funds and ETFs can be a strong way to invest in electric cars while maintaining a diversified portfolio. It can also be a good way to access foreign and over-the-counter assets without needing the additional exposure or expense that often accompanies those purchases.
Finally, for more sophisticated investors, there are always commodities contracts.
All new technology tends to have its own resource footprint. In the case of electric cars, they need large quantities of commodities related to energy and magnetics. This includes metals like lithium, nickel, cobalt, graphite, aluminum and manganese. These are materials common to high-tech electronics because they’re typically used for batteries and weight-sensitive construction. However, electric cars are some of the largest, most power-intensive electric devices ever built. It takes vastly more lithium to build a car battery than, say, a laptop’s power supply.
This makes commodities a potentially good investment for anyone who expects the electric car market to grow. You can buy in on effectively the ground floor, purchasing the raw materials that everyone will need. However, you’re also exposed to the fluctuations of the volatile commodities marketplace and are subject to downturns if technology develops in a new or unexpected direction.
The electric vehicle market has reached approximately 5% of all new car sales in the United States, and estimates suggest that could approach anywhere from 25% to 50% over the next decade. If you’re looking to add EV exposure to your portfolio, you can do so in a variety of ways. You can invest directly in EV automakers, buy shares of mutual funds or ETFs that invest in EV tech, or even invest in the commodities and natural resources needed to produce electric cars.
Tips for Owning or Investing in Electric Vehicles
- Electric cars have some big advantages and some equally sharp limitations. If you’re thinking of buying an EV, keep in mind that some places are better than others to do so. Check out our most recent study on the best places to own an electric vehicle.
- Does your portfolio have exposure to EV technology? A financial advisor can help you position your portfolio for the future. SmartAsset’s financial advisor matching tool makes it easy to connect with professional advisors in your local area. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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