China is one of the world’s largest automotive markets, and amid the country’s ongoing efforts to damp pollution and embrace clean technologies, it’s also a pivotal destination for electric vehicle sales.
That’s not necessarily good news for the country’s makers of internal combustion engine vehicles, many of which are state-owned enterprises (SOEs) and have been slow to embrace electric vehicles. However, that is a potentially positive catalyst for assets such as the KraneShares Electric Vehicles and Future Mobility ETF (NYSE: KARS).
While KARS, which follows the Bloomberg Electric Vehicles Index, isn’t a dedicated China exchange traded fund, it does feature ample exposure to that country, making it a pertinent play on the shift to electric vehicles there.
“China’s largest state-owned automakers’ market shares could decline further in 2023 due to slower progress in electrification at their major joint ventures (JV),” noted Fitch Ratings. “Global JV brands face growing pressure to accelerate the pursuit of electrification in China, but weaker electric vehicle (EV) profitability and large upfront ecosystem investments are deterrents.”
China FAW Group Co., Ltd. and Dongfeng Motor Group Company Limited are the two largest makers of traditional automobiles in China. Neither are KARS components, but they have some exposure to the theme of increasing electric vehicle sales in their home country.
“FAW may be more resilient with FAW-Volkswagen JV’s exposure to the luxury segment, which is less affected by the accelerated EV penetration, and more aggressive EV strategy than other JVs. Volkswagen AG was one of the first movers among foreign automakers to dedicate investments to EV platforms and ecosystems, and sold nearly 150,000 units of NEVs in China via its two JVs in 2022,” added Fitch.
Fortunately, KARS is home to several China-based EV producers, include BYD and Nio (NYSE:NIO), which combine for over 5% of the ETF’s roster. BYD battery unit FinDreams Technology recently filed plans to build a new $1.2 billion factory in China, further highlighting robust EV demand in the world’s second-largest economy.
Of course, KARS features exposure to Tesla (NASDAQ:TSLA). That’s the ETF’s second-largest holding at a weight of 4.38%, and while the company is a dominant EV producer in the U.S., it’s a growing force in the China EV landscape, too.
In January, Tesla sold 66,000 units in China, good for a 10.37% year-over-year jump and an 18.38% increase from December’s sales figures.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.