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A year ago, the price of electric vehicles (EVs) was rising as manufacturers struggled to find enough parts to meet growing demand. This year, there are plenty of parts, but even so, unsold cars are piling up in dealer lots.
As more manufacturers unveil EV models, competition is rising with some models proving more popular than others. Another trend is delayed purchasing decisions as buyers await improvements in battery storage, which increases driving range. A weakening economy and high financing costs are other factors.
Although the mismatch between supply and demand is part of the industry’s growing pains, analysts say the long-term trend of rising demand for EVs is intact.
“We believe 2024 is the inflection point year for EVs as General Motors, Ford Motor Co., Rivian Automotive Inc., and almost 100 original equipment manufacturers worldwide attack this market,” says Daniel Ives, managing director, equity research, at Wedbush Securities Inc. in New York.
“It’s a matter of when, not if. But consumers need to have the right price points and the cars [they want.]”
The unevenness of demand is masking a largely bullish picture, says Pedro Palandrani, director of research at Global X ETFs in New York. He notes that global EV sales should hit 14 million units this year – 40 per cent higher than in 2022.
Mr. Palandrani says the price cuts are associated less with weakening overall demand than with increasing competition. Some legacy manufacturers face gluts, while others including Tesla Inc. TSLA-Q are seeing steady demand.
In August, Tesla trimmed 6 per cent from the price of some models sold in China. In July, Ford cut the price of its base F-150 Lightning truck model by US$15,000. Ford has told investors it expects to lose US$3-billion in its EV unit this year, but they should look at the unit as a startup.
How stocks have fared
The landscape has led to mixed performance for exchange-traded funds (ETFs) with an electric-vehicle focus.
Mr. Palandrani oversees thematic ETFs including Global X Autonomous & Electric Vehicles ETF DRIV-Q with US$781.8-million in assets under management (AUM) and Global X Lithium & Battery Tech ETF LIT-A with US$2.8-billion in AUM.
Global X Autonomous & Electric Vehicles ETF includes mega-cap tech companies such as Microsoft Corp. MSFT-Q and Alphabet Inc. GOOG-Q, whose main businesses lie elsewhere. The ETF has benefited from their rebound and is up 23 per cent year-to-date.
Global X Lithium & Battery Tech ETF has an emphasis on miners and battery-related technology and is up 1 per cent. The main reason for the weak performance is a decline in lithium prices, though Mr. Palandrani notes current prices are still four to six times higher than the historical averages. Weakness in China’s economy has hurt some Chinese companies in the fund.
Elliot Johnson, chief investment officer at Toronto-based Evolve Funds Group Inc., says there “seems to be a gap between enthusiasm and actual EV purchasing decisions,” but likewise believes demand is evolving.
Mr. Johnson oversees Evolve Automobile Innovation Index Fund CARS-T, which has $45.3-million in AUM. The ETF is up 1 per cent year-to-date. While some holdings overlap with Global X, it excludes the big tech names because the majority of their business lies beyond EVs and related components.
He says surveys find that more than half of new car buyers say they will consider an EV, even though actual sales account for less than 8 per cent of new vehicles. He attributes this gap to a hesitancy to commit amid rapid change. One area that consumers are watching is battery technology given that battery packs make up about a third of a vehicle’s cost.
Range anxiety is easing, but remains a concern for North American buyers, though less so in China, where driving distances tend to be shorter. The good news is the U.S. doubled the size of its public charging network between 2021 and 2022 and the Biden administration has announced a US$7.5-billion initiative to expand it further.
“As the charging network improves and EV prices continue to fall, affordability and range anxiety become a weaker reason to choose an internal combustion engine over an EV,” Mr. Johnson says.
When it comes to investment opportunities, Mr. Ives likes Tesla and Rivian RIVN-Q, which markets electric sports utility vehicles, pickup trucks and utility vans. He also likes Li-Cycle Holdings Corp. LICY-N, the early-stage lithium-ion battery recycler based in Mississauga. Li-Cycle’s strategy is to grow with the industry to become a leading recycler of EV batteries in North America and Europe
Both Mr. Palandrani and Mr. Johnson believe that some traditional carmakers are going to have a challenging time catching up because producing EV cars is a very different process than internal combustion vehicles. Even so, their ETFs hold such legacy automakers as Honda Motor Co. HMC-N, Renault Group, Volkswagen AG VWAGY and Stellantis NV STLA-N. Neither holds Li-Cycle in their ETF.
Not surprisingly, analysts see a basket of stocks as the best way for investors to go.
“Picking winners and losers in an emerging industry is almost impossible,” Mr. Johnson says. “Instead, you can gain access to the entire supply chain of the EV through a diversified ETF.”
Adam Mayers is a contributing editor to the Internet Wealth Builder investment newsletter.
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