What are EV stocks? How to invest in them?
Electric cars are revolutionizing the automotive industry, and the growth potential of this industry is reflected in the increased demand for Electric Vehicle (EV) stocks. According to a report by Grand View Research, the global EV market is expected to reach $1.07 trillion by 2027, with a compound annual growth rate (CAGR) of 41.5% from 2020 to 2027. With such optimistic growth prospects, many investors are eager to explore the EV market and which types of companies make up its ecosystem. There are many components to the EV supply chain, beyond the vehicles, and in this article we’ll explore the basics of investing in EV stocks. We’ll dive into the different types of companies involved in the EV industry, from lithium battery manufacturers to charging stations, and how investors can apply knowledge of the EV supply chain to their investment strategies.
EV market outlook 2023
The electric vehicle (EV) industry has seen significant growth in recent years, driven by factors such as advancements in battery technology, government incentives, and consumer demand for more sustainable transportation options. As a result, many analysts predict that the market for EVs and associated technologies, like charging infrastructure and EV energy sources, is well-positioned for significant growth in the coming years
When looking at growing industries, analysts and researchers posit predictions as to adoption and revenue growth into the future. Regarding EVs, a recent report by Bloomberg New Energy Finance predicted that EVs could account for 10% of global passenger vehicle sales by 2025, rising to 28% in 2030 and 58% in 2040. So while EV sales today make a minority share of all sales, within 20 years they are expected to make up over half of all auto sales, according to these estimates.
In addition, according to the International Energy Agency’s (IEA) Global EV Outlook 2021, the number of EVs on the road could reach 145 million by 2030. A report by BloombergNEF states that global electric vehicle sales are expected to grow from 3 million units in 2020 to 14 million units in 2025 and 54 million units by 2040. According to Beyond Market Insights, the size of the Global Electric Vehicle Market was worth around USD 178.5 billion in 2021 and is predicted to grow to around USD 1108.8 billion by 2030 with a compound annual growth rate (CAGR) of roughly 22.5% between 2022 and 2030.
Beyond sustainability and technology, there are notable regulatory decisions that have shaped the EV industry, for example, the Inflation Reduction Act of 2022. One of the key provisions of the Act is the extension of tax credits for EV purchases, which aims to make EVs more affordable for consumers. Additionally, the Act includes funding for the development of charging infrastructure, which is essential for the growth of the EV market.
Why retail investors are interested in EV stocks
There are a few reasons why retail investors are interested in retail stocks:
Benefits to consider when buying EV stocks
There are several potential advantages to investing in electric vehicle (EV) stocks:
Limitations to consider when buying EV stocks
Amid this hype, as is the case with any growth stock, EV stocks can be risky. Below are some potential downsides to be mindful of:
EV stocks: Bull and bear cases
Overall, EV industry bulls are optimistic about the future of electric vehicles, citing trends such as the need for clean energy, advancements in battery technology and charging infrastructure, affordability, government support, potential for autonomous driving technology, and heavy investment in the industry. They see EVs as a rapidly growing market with significant potential for growth and returns
In contrast, EV industry bears have raised concerns about the high costs of EVs relative to gas-powered vehicles, risks associated with EV battery production and supply chain, limited availability of charging infrastructure, lack of standardization in charging technology, concerns about battery lifespan and disposal, and challenges faced by established automakers in transitioning to EV production. They are also cautious about the long-term sustainability of the EV market, which could inhibit future growth potential.
Where to research EV stocks
Given the popularity of EVs among investors, there are various sources from which diligent investors can gather data to make informed decisions. Trusted financial news outlets often cover this industry and investors can track company news, announcements, and earnings calls through publicly available investor relations websites. Investing platforms like Public also offer in-context education, such as EV supply chain courses, audio shows with industry experts, and advanced charts on EV stock pages. By regularly monitoring these sources, investors can make educated and timely portfolio decisions and determine the best EV stocks based on their goals.
How to buy/invest in EV stocks
Getting familiar with the EV value chain is a good starting point for investors who want to invest in EV stocks but are unsure which stocks best align with their investment goals. By becoming familiar with the EV value chain, investors can more easily identify the companies that are well-positioned for growth and those that are riskier. The EV value chain also includes companies beyond automakers, and understanding the components of the entire system can unlock new ideas for investment opportunities (for example, lithium battery technology). Becoming more familiar with the industry can help them navigate the potential risks and challenges, such as supply chain disruptions or regulatory changes.
The EV value chain can be broken down into several components, including raw material production, battery manufacturing, vehicle production, and charging infrastructure. Each component plays a vital role in the success of the overall EV industry, since the cars you see on the road all rely on the processes and parts that lead to the end product.
As an investor, it is vital to conduct your research to understand the various components of the value chain and how they fit into your investment strategy. For example, understanding the raw material supply chain can help investors evaluate the risks associated with supply chain disruptions, while understanding battery technology can help investors assess a specific EV manufacturer’s long-term prospects. Also, understanding the role of charging infrastructure can help investors evaluate infrastructure investment opportunities. By learning the various components of the EV value chain, investors can understand the larger forces at work within the sector.
There are several publicly-traded companies that specialize in different aspects of the EV value chain. For example, EV automakers like Tesla, NIO, XPENG, and BYD, as well as legacy manufacturers like Ford and GM that are increasingly investing in EVs. On the other hand, there are lithium battery companies such as Panasonic, LG Chem, and CATL, which play a crucial role in powering EVs and are also growing as demand for EVs increases. There are also companies like ChargePoint, EVBox, Fisker, and Blink Charging, which focus on developing and providing EV charging infrastructure to support the growth of the EV industry. It’s important for investors to research these companies thoroughly and understand their position in the EV value chain before making investment decisions.
Finally, investors can gain exposure to the EV industry through exchange-traded funds (ETFs), which provide diversified portfolios of EV-related companies. Some popular EV-focused ETFs include the Global X Autonomous & Electric Vehicles ETF (DRIV), the KraneShares Electric Vehicles & Future Mobility ETF (KARS), and the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN). These ETFs typically hold a mix of EV automakers, battery manufacturers, and charging infrastructure companies.
Investing in the rapidly expanding EV industry can be an enticing opportunity for investors. Nonetheless, it is crucial to conduct thorough research and grasp the intricacies of the industry before making any substantial investment decisions. While investing in individual EV stocks or ETFs can offer exposure to this market, diversification across various sectors and industries is essential for long-term investors. By taking the below steps, investors can position themselves to capitalize on the growth potential of this exciting industry.
