Electric vehicle (EV) equities and related exchange traded funds currently appear as though their check engine lights are on.
Recently, things have gotten so rough in the EV investing space that there’s talk of pulling Tesla (TSLA) from the “Magnificent Seven” and replacing it with Warren Buffett’s Berkshire Hathaway (BRK.B). That might not be “blood on the streets” territory. But the current dreariness in this industry could be opening the door to long-term opportunity.
Of course, the current setup for EV stocks might not be conducive to stock-picking. That indicates the KraneShares Electric Vehicles and Future Mobility ETF (KARS) could be a credible idea for market participants looking to position for a potential EV equity rebound.
There’s an EV Disconnect
KARS is in the red to start 2024. But that’s not necessarily an indictment of the ETF. Rather, that performance highlights the fact that there’s a disconnect at play in the EV investing space. That’s highlighted by the fact that global EV sales surged 40% last year.
“Looking ahead to 2024, global EV sales are projected to increase by 20%, with China expected to continue to dominate the market. Despite regulatory changes in the US, investment in battery infrastructure surged, presenting opportunities amidst uncertainties surrounding clean energy policies,” according to KraneShares research.
The expected sales growth for EVs in 2024 is below that of the 2023 rate. But normalization of that growth in the double-digit range is possible. And positive data confirms there’s still plenty of share for EVs to wrest from internal combustion engine counterparts. That could also be a long-term plus for KARS member firms.
“Although growth in the EV industry may normalize in the coming years, we believe the long-term picture remains the same,” added KraneShares. “The world still needs to replace 1.3 billion internal combustion engine vehicles (ICE) with EVs by 2040, and we have only 40 million EVs on the road today. In 2023, we were once again reminded that structural growth does not always form a straight line.”
Another advantage offered by KARS is that the ETF’s allocations to OEMs tilts heavily toward pure-play EV producers. That’s important because those firms don’t have to serve the dueling interests of EV and ICE output. Likewise, KARS’ has only modest exposure to Ford, and no exposure to GM – two companies that are struggling to profitably produce EVs.
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