Jay Jacobs is Managing Director and U.S. Head of Thematics and Active Equity ETFs at iShares. Jacobs recently took retail investor questions about the Inflation Reduction Act and its potential impact on clean energy and EV via the Public.com investing platform. Here’s an exclusive recap of the Town Hall event for Benzinga readers.
How far into the horizon are the impacts of the Inflation Reduction Act legislation?
Jay Jacobs: The IRA could have profound implications for the EV and clean energy industries, with spending allocated through 2031. We are already seeing impact from the legislation, and the demand for clean energy is rapidly growing. Businesses worldwide are feeling the pressure to reduce their carbon footprints, accelerating the transition to net-zero. Meanwhile, consumers are responding enthusiastically to government programs in place to motivate purchases of EVs over GHG-producing internal combustion cars. EV and clean energy -themes look like they are here to stay.
How should investors think about autonomous vehicles vs. electric vehicles? Will all AVs be EVs?
JJ: We believe AVs and EVs have already started to converge. An all-electric battery pack acts as a more stable power source that can enable higher-powered AV components. EVs allow for simpler integration of the advanced technologies required for the cleanest and safest operation of AVs. That’s why we believe that in the long term, building EVs with autonomous capabilities integrated from the beginning is the most efficient way to unlock the tremendous societal benefits of self-driving cars.
The EV market seems to be a battle of new disruptors versus legacy automakers. What are the advantages/disadvantages for each?
JJ: Traditional EV manufacturers have long-standing experience in vehicle production, supplier management and a well-established supply chain. However, heavy investment is needed for incumbents to build up and adapt to new electric machines, power electronics & battery storage systems. On the other hand, EV disruptors focus solely on the production of EVs, possessing expertise in innovative software and batteries. However, some of the disruptors lack supply chain expertise and manufacturing capacity.
Can you explain how we should think about the value chains for clean energy and EV?
JJ: Many themes’ value chains cut across areas of the market. Take self-driving and EV tech, for example. We need exposure to auto manufacturers. We also want exposure to the companies building the sensors that enable self-driving cars to navigate, the EV battery producers providing the power-source for the car, and the EV charging firms that will take us from a world of gas stations to charging stations.
How should investors think about capturing potential upside given that most of us are not experts in these spaces and will have a difficult time picking ‘winners’ with a high degree of confidence?
JJ: Megatrend ETFs, which offer broad, diversified exposure to the full value chain of a given theme, can be leveraged to deliver exposure to companies which could benefit from legislation such as the Inflation Reduction Act. For example, $IDRV gives investors exposure across the full value chain of electric vehicles including charging stations, batteries, and technology.
What are some risks or challenges you project could happen in EV and clean energy spaces here in the U.S. following the IRA legislation?
JJ: We still have a long way to go to create the robust domestic manufacturing sector and supply chains that firms will need to produce EVs and clean energy at scale. In particular, it could be difficult for EV companies to qualify for the maximum tax credits in the IRA legislation due to the lack of a domestic supply chain for key inputs such as lithium, aluminum and zinc.
Are there other industries beyond clean energy and EV that you are closely tracking as megatrends as we approach 2023?
JJ: We see potential opportunities in themes that could weather higher rates, persistent inflation, and a potential economic slowdown over the next 12 months, including beneficiaries of fiscal policy (e.g., infrastructure), healthcare innovation (e.g., genomics), and pockets of non-cyclical technology (e.g., cybersecurity).
Public.com members can view the full Q&A in the app. Open To The Public Investing is a member of FINRA and SIPC. This content is not investment advice. Investing involves risk of loss. This is not a recommendation of any ETF strategy mentioned. Before investing in an ETF, investors should consider the investment objectives, risks, and charges and expenses of the ETF before investing. A prospectus contains this and other information about the ETF and should be read carefully before investing. Customers should review prospectuses available at https://www.ishares.com/us/products/etf-investments.
iShares funds distributed by BlackRock Investments, LLC, who is not affiliated with Public. See here for more information on iShares ETFs: https://www.ishares.com/us/strategies/megatrends/.
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