Market Overview

The Next Step For Electric Vehicle ETFs

The Next Step For Electric Vehicle ETFs

Two exchange traded funds in the U.S. are dedicated to the electric vehicle investment theme. The KraneShares Electric Vehicles & Future Mobility ETF (NYSE: KARS) debuted in January, followed by the InnovationShares NextGen Vehicle and Technology ETF (NYSE:EKAR) in mid-February.

KARS, the KraneShares offering, is off to a solid start with $27.2 million in assets under management as of April 13 — a fine showing for a niche ETF that is barely three months old.

Adoption is needed to propel funds like EKAR and KARS over the long-term; more charging infrastructure is needed to propel adoption of electric vehicles themselves.

“Technological advances and political backing have paved the way for a rapid acceleration in the adoption of electric vehicles in EMEA in recent years,” Fitch Ratings said in a Monday note. “The largest automakers, such as VW, Toyota, Daimler and Ford, forecast that EVs will constitute a growing share of total vehicle production, up to 30 percent in certain cases, within less than 10 years.”

Banking On Adoption

KARS follows the Solactive Electric Vehicles and Future Mobility Index. The 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.

Member firms in KARS are engaged in electric vehicle production, autonomous driving, lithium and/or copper production and electric infrastructure businesses, among other pursuits. The ETF is heavily allocated to mainland Chinese stocks, an important trait because China is the world's largest automotive market and is expected to be a primary driver, along with the U.S., of electric vehicle growth.

“Successful, widespread use of EVs requires material investments in comprehensive EV charging infrastructure,” according to Fitch. “While there has been some progress, with a growing number of charging points across Europe, a dense and convenient charging infrastructure is still lacking and might become a hindrance for further advances in EV adoption.”

Another Approach

EKAR uses artificial intelligence as part of its stock selection process. The ETF includes traditional automakers, such as Toyota Motor Corp. (NYSE: TM), and well-known technology companies such as Apple Inc. (NASDAQ: AAPL) and Alphabet Inc. (NASDAQ: GOOGL) (NASDAQ: GOOG). 

Fears of running out of charge are holding some drivers back from buying electric vehicles.

“Therefore, a convenient, rapid and easily accessible network of charging points is of paramount importance for the further adoption of EVs,” Fitch said.

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