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An EV is a vehicle powered by an electric motor that draws electricity from a battery charged from an external source. Plugging-in cars to home power sources is becoming more popular, and it is cheaper than buying gasoline for a traditional vehicle. While EVs have environmental benefits, the downside outweighs the climate change attributes for many drivers. EV batteries require rare earth metals where mining is a significant environmental challenge. EVs are only as green as the power sources. If the electricity is fossil fuel-generated, it destroys the environmental benefits. Electric cars tend to be more expensive than gasoline-powered cars, and replacing the battery is a significant cost. EVs typically have a shorter travel range than gasoline-powered cars and can take a long time to recharge. Moreover, there are far fewer charging points than gas stations.
As the technology develops, carmakers will likely address these issues, but an investment in the leading EV ETF products has been a loser since late 2021. Tesla (TSLA) remains the most recognizable EV brand and the carmaker with the top market cap in late March 2023.
TSLA and EV ETF products have not done well since late 2021.
TSLA is the leader
Tesla (TSLA) is the EV leader in market cap and leads all carmakers.
Source: Companiesmarketcap.com
The chart shows Tesla’s market cap is over three times higher than the second-leading publicly traded carmaker, Toyota (TM). TSLA’s value is higher than Toyota, Porsche, BYD, Mercedes Benz, and Volkswagen combined.
TSLA- A bearish trend since late 2021
Tesla, the leader of the automotive pack, reached a record $414.50 per share high in November 2021. Since then, the shares have traded in a bearish pattern of lower highs and lower lows.
The chart shows the decline that sent TSLA to a $101.81 low in January 2023. While the shares recovered 88.6% to over the $190 level on March 27, TSLA shares remain closer to the early 2023 low than the November 2021 all-time high. TSLA pays no shareholder dividends.
IDRV-DRIV-LIT are also trending lower
The EV ETF products have followed TSLA’s path since November 2021.
The iShares Self-Driving EV and Tech ETF (IDRV) focuses on growth and innovation in the EV sector. At $36.12 per share, IDRV had over $401 million in assets under management, trades an average of just above 47,500 shares daily, and charges a 0.47% management fee. IDRIV pays shareholders a $0.77 dividend, translating to a 2.13% yield.
The chart shows the decline from the November 2021 $57.71 high to $31.86 in October 2022. At $36.12 on March 27, IDRIV was 13.4% above the low and has underperformed TSLA, one of its holdings.
The chart shows the decline from the November 2021 $57.71 high to $31.86 in October 2022. At $36.12 on March 27, IDRIV was 13.4% above the low and has underperformed TSLA, one of its holdings.
The GX Autonomous & Electric Vehicles ETF (DRIV) also holds TSLA shares. At $22.50 per share, DRIV had over $848 million in assets under management, trades an average of above 114,000 shares daily, and charges a 0.68% management fee. DRIV pays shareholders a $0.25 dividend, translating to a 1.1% yield.
The chart shows the decline from the November 2021 $32.37 high to $18.91 in October 2022. At $22.50 on March 27, DRIV was 19% above the low and has underperformed TSLA.
The chart shows the decline from the November 2021 $32.37 high to $18.91 in October 2022. At $22.50 on March 27, DRIV was 19% above the low and has underperformed TSLA.
The GX Lithium & Battery Technology ETF product (LIT) is another ETF that holds TSLA shares. At $60.35 per share, LIT had over $3.24 billion in assets under management, trades an average of over 395,000 shares daily, and charges a 0.75% management fee. LIT pays shareholders a $0.58 dividend, translating to a 0.96% yield.
The chart illustrates the drop from the November 2021 $97.13 high to $57.56 in January 2023. At $60.35 on March 27, LIT was only 4.8% above the low and has underperformed TSLA, DRIV, and IDRV.
KARS and HAIL have also been falling
The KS Electric Vehicles and Future Mobility ETF (KARS) tracks the performance of the sector and also has TSLA exposure. At $29.30 per share, KARS had over $184.8 million in assets under management, trades an average of 20,965 shares daily, and charges a 0.70% management fee. KARS pays shareholders a $0.32 dividend, translating to a 1.09% yield.
The chart highlights the fall from the November 2021 $55.85 high to $27.30 in December 2022. At $29.30 on March 27, KARS was only 7.3% above the low.
Finally, the SPDR S&P Kenso Smart Mobility ETF (HAIL) has a small long position in TSLA. At $30.54 per share, HAIL had over $54.6 million in assets under management, trades an average of 5,174 shares daily, and charges a 0.45% management fee. HAIL pays shareholders a $0.68 dividend, translating to a 2.22% yield.
The chart shows the decline from the February 2021 $71.43 high to $28.22 in December 2022. At $30.54 on March 27, HAIL was only 8.2% above the low.
An opportunity with lots of risks
While TSLA is highly volatile compared to the EV ETF products, it is the sector leader with the most upside potential compared to diversified ETFs. Other leading EV and EV-related companies may offer better future returns, but in late March 2023, TSLA remains the best bet for exposure to the burgeoning industry.
The significant declines from 2021 create opportunity, but the potential for rewards always comes with commensurate risks.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
