The ALPS Clean Energy ETF (ACES), like many alternative energy ETFs, has ample exposure to wind and solar equities. While those have been rewarding places to be this year, investors shouldn’t overlook the fund’s electric vehicle exposure.
Important to the electric vehicle thesis is expanding market share around the world, including China, Europe, and the U.S.
As China continues to reopen its economic doors following the Covid-19 pandemic, it’s been electrical vehicles leading the way for the automotive market. This, in turn, could fuel gains for exchange-traded funds (ETFs) with EV exposure.
“The overall mainland China market in 2020 has nearly 8 million CAFC credit deficits,” according to IHS Markit research. “On the other hand, the administrative and economic incentives during recent years have driven strong electrification growth in the mainland China market; comparing to NEV requirements, the market is about to generate roughly 3.6 million NEV credits in 2020.”
China and Beyond
Interestingly, the COVID-19 pandemic is bolstering the case for renewable energy and electric vehicle adoption, which could provide a runway for long-term growth with ACES.
“Under COVID-19, the Chinese government has taken measures to further promote the growth for electric vehicles, from the continuation of NEV subsidy and with a delay of China 6 emissions standards full implementation, and also the possibility of using 2021 NEV credits to back write off 2020 deficits. The newly finalized dual credit policy still requires 14%, 16%, and 18% NEVs in 2021, 2022, and 2023,” according to Markit.
Global automotive industry observers believe electric vehicles will reach comparable price points to traditional internal combustion engine vehicles sometime in the next several years, making it more compelling for drivers to make the switch to electric vehicles. Vital to increased adoption of EVs is increased driving ranges and charging capacity. ACES has ample U.S. exposure to capitalize on domestic adoption trends, too.
“In March 2020, the U.S. Safer Affordable Fuel-Efficiency (SAFE) Vehicle Rule was finalized to set relaxed fuel economy and CO2 standards for post model year (MY) 2020,” notes Markit. “The SAFE rule only requires an annual increase of approximately 1.5% in stringency from MY 2021 through MY 2026, compared with around 4-5% under the Obama-era rule for MY 2021-25. In MY 2020, the US market is forecasted to reach 42.4 mpg for passenger car fleet and 29.9 mpg for light-duty trucks on average, including applicable credits like air conditioning and off-cycle credits. Even with a drop in light vehicle sales from COVID-19 pandemic conditions, the overall US market is projected to over-comply starting from MY 2022.”
Other alternative energy ETFs include the First Trust Global Wind Energy ETF (FAN) and the SPDR Kensho Clean Power ETF (CNRG).
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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.
