Market Overview

Good News For Electric Vehicle ETFs

Good News For Electric Vehicle ETFs
Another Electric Vehicle ETF Arrives

The KraneShares Electric Vehicles & Future Mobility ETF (NYSE: KARS) is just one month old. The Innovation Shares NextGen Vehicles & Technology ETF (NYSE: EKAR) debuted just a week ago, but both of these rookie exchange traded funds could be among the most well-timed funds to debut in 2018 as electric vehicle demand is expected to surge.

KARS, the KraneShares offering, follows the Solactive Electric Vehicles and Future Mobility Index. That benchmark “is designed to track the performance of companies engaged in the production of electric vehicles and/or their components, or engaged in other initiatives that may change the future of mobility,” according to KraneShares.

“Electric Vehicle adoption is an increasing threat to oil demand, which could plausibly peak before 2030,” Fitch Ratings said in a recent note. “This is not our core scenario, but developments in 2017 show how technological changes and greater product awareness could lead to annual sales of 10 million battery-powered EVs by 2025.”

Off To A Good Start

In the case of KARS, that ETF is already reflecting investors' bullish expectations for the electric vehicle industry. In one month, the ETF already has nearly $19.3 million in assets under management.  

“Last year saw a slew of EV product announcements driven by technological advances such as the continued decline in battery costs, consumer preferences and environmental policy,” said Fitch. “Governments and manufacturers have set EV targets. OPEC has raised its forecast for the size of the EV fleet in 2040 to 250 million units from 140 million, and other forecasters have disclosed EV penetration assumptions for the first time.”

KARS holds 69 stocks. The ETF is up 4.3 percent over the past week.

Focusing On Drivers

The success of EVs and ETFs such as KARS and EKAR could depend on how rapidly drivers transition from traditional gas-powered automobiles to electric competitors.

“Of course, the path of EV sales relative to internal combustion engine vehicle sales will depend on how far consumer behavior and public policy goals support the heavy investment in EV production needed to meet bullish estimates,” said Fitch. “But by considering a scenario where EVs' cost and range are comparable to ICEs, consumers prefer driving EVs, policymakers mandate and support electrification and carmakers see cost benefits of focusing on one drivetrain, it is not unreasonable to expect global EV stock by 2040 of over 1 billion, or more than half the vehicles on the road.”

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