It’s not a dedicated electric vehicle (EV) exchange traded fund, but with significant exposure to Tesla, the ARK Innovation ETF (NYSEArca: ARKK) is highly levered to the EV trade. That could be a positive trait for long-term investors.
“Companies within ARKK include those that rely on or benefit from the development of new products or services, technological improvements and advancements in scientific research relating to the areas of DNA technologies (‘Genomic Revolution’), industrial innovation in energy, automation, and manufacturing (‘Industrial Innovation’), the increased use of shared technology, infrastructure and services (‘Next Generation Internet’), and technologies that make financial services more efficient (‘Fintech Innovation’),” according to ARK Invest.
UBS forecasts 20% of global new auto sales will be EVs by 2025, with that percentage soaring to 50% by 2030.
“Tesla and other EV pure-plays widen their tech lead over legacy Auto Inc, while the EV penetration curve is very steep. The gap becomes particularly large on the software side – legacy OEMs lose market share as their product is seen as inferior by consumers,” note UBS analysts in outlining multiple scenarios that could come to pass in the automotive industry.
ARKK’s Play on Emerging Trends
Adding to the case for ARKK is the international scope of the EV market.
For example, Chinese electric vehicle sales more than tripled for the month of January year-over-year, according to the China Association of Automobile Manufacturers. In Europe, sales of alternatively powered cars, which include batteries, hybrids, and biofuels, surpassed those of diesel-engined vehicles for the first time in the third quarter of 2020, and now make up a third of new passenger cars, according to the European Automobile Manufacturers’ Association.
Boosted sales forecasts by UBS “are based on the technology and cost breakthrough, the increasing consumer choice of attractive EVs and a regulatory environment that favors EVs,” reports Business Insider. “The optimistic view is based on the US market, Hummel believes the new administration will likely substantially improve the EV regulatory framework.”
With an emphasis on lowering emissions via their electrical vehicles, Tesla and Nio have been producing stellar gains over the past year. Nio is often seen as the Tesla of China, though it’s not an ARKK component.
With a strong 2020 in the rearview mirror, can these companies continue their upward momentum in 2021?
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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.