Gas guzzlers are on their way out. Electric vehicles and EV-adjacent technology are the future. For investors, where should you put your money in this industry? And, more importantly, where shouldn’t you…
Lead image via ADAC Foundation / Fotolia
Climate change is real. The Pentagon is already preparing for mass unrest, social upheaval, and widespread strikes due to unchecked climate change. Vehicle exhaust contributes to about one-fifth of all greenhouse gas emissions in the US. Switching to electric vehicles — or EVs — won’t solve the climate change crisis, but it’s a giant leap in the right direction.
Even if you don’t believe in climate science, market forces will push us toward electric vehicles. Crude oil becomes more expensive by the day, and burning gasoline just to drive down to the corner store for an energy drink wastes this precious, limited resource.
While we’ve consumed only about 5% of the Earth’s petroleum supply, we’ve depleted most of the easy-to-access crude oil closest to the planet’s surface. Energy companies must drill deeper, with more sophisticated (and more expensive) drilling methods to reach the not-so-easy oil pockets underground. As our appetite for petroleum grows, they’ll drill even further, causing gas prices to climb ever higher over time.
In other words, that trip to buy an energy drink may only cost a dollar today, but within the next decade, it could cost more than the energy drink. And thanks to fuel taxes, this is already the case in some EU countries.
The EV revolution is fast approaching. The race is on, and if you make smart bets now, there’s money waiting for you at the finish line. So where do you start if you’re interested in investing in the EV industry? Let’s explore.
What Is EV and How Big Is This Industry?
EVs are vehicles with electric engines powered by batteries. Most vehicles today run on gasoline, which burns inside combustion engines. Most commercial EVs, called battery EVs or BEVs, rely on rechargeable batteries filled at charging stations. Other EVs use photovoltaic cells (PHEVs) to charge the battery with solar power. Still others use hydrogen in fuel cells (FCEVs) and emit pure water from the exhaust.
For the purposes of wise investing in electric vehicles today, we’ll only look at BEV producers and their ancillary industries. BEVs make up the vast majority of EVs in operation, and these will likely dominate the industry until solar, hydrogen, or some other novel power source becomes more efficient, cheaper, and in demand.
Now, before dropping a single dime on EV stocks, you should first know the current size of the industry and how much analysts expect its markets to grow.
In 2019, the global EV industry sold a record-breaking 2 million units worth $162 billion, up 6% from 2018, which also saw record-breaking sales. For perspective, consider that the global motion picture industry made $101 billion in 2019 and the US petroleum industry made $180 billion in 2018. The EV industry may not be shooting “to the moon” anytime soon, but it’s doing nicely, especially given that a measly 10,000 new EVs were sold in 2010.
Last year, the International Energy Agency reported the worldwide EV market grew a whopping 60% annually from 2014-2019, and Grand View Research anticipates a 41.6% compound annual growth rate (CAGR) from 2020-2027. Allied Market Research proposed a more conservative estimate, at 21.6% CAGR from 2020-2027. In comparison, the world’s hottest pot stocks are expected to grow at only 18% CAGR during the same period.
Global electric car stock, 2010-2019. Image via the International Energy Agency
Graph via Grand View Research
To be frank, the decades-long debate over whether EVs will eventually replace gas guzzlers is fuckin’ over. Tesla went from years of flatlining to becoming the world’s most valuable auto maker in just one year. Tesla bulls like Ross Gerber won, and Tesla bears like Gordon Johnson got pink slips.
So, ignore the EV haters. They based their predictions off old data, most of it couched in what was, back then, slow battery recharging times and the lack of charging stations. Wise investing in electric vehicles should combine current data with future expectations.
Some comedy for Tesla fans pre earnings. My friends at Bullish created this mash up video of TV spots, me vs the FUD slinging short sellers and analysts who were all wrong about Tesla… Tesla supporters and @elonmusk – Enjoy. $TSLA #ClimateAction #CNBC #stocks @Tesla pic.twitter.com/ifuHzY83bz
— Ross Gerber (@GerberKawasaki) October 20, 2020
How the Biden Administration Will Affect the Future of EV and EV Investing
Before making your investment picks, there’s one last thing to consider: Trump is no longer the US president. Joe Biden is. That changes the future EV landscape. A booming US EV market would be the most disruptive, not because of our population size, but because we burn through so much damned gas.
While the US is home to only 4% of the world’s population, we consume more liquid fuel than the next nine nations combined: In 2017, Americans consumed 9.3 million barrels of liquid fuel per day. In second place, China, with a population three times the size of the US, consumed just 3.4 million barrels per day.
Gas consumption by country, per day, in 2017. Image via TheGlobalEconomy.com
During the 2020 campaign, Biden promised to elevate US manufacturing while committing to green tech and combating climate change. His Democratic Party still controls the US House and now holds the slightest majority possible in the Senate.
Though the Republican Party has traditionally opposed EVs and other green technologies, two-thirds of Young Republicans — conservatives 18-to-34 years of age — not only recognize climate change as a global crisis, but also understand there’s a metric shitton of money to be made by going green. And some Young Republican activists are lobbying their GOP elders to back the Green New Deal.
Biden hasn’t yet revealed how the US can achieve a zero-carbon footprint by 2050, nor how the entire country could convert to EVs. However, here’s a start: He wants to replace the federal government’s 645,000 gas-guzzling vehicles with American-made EVs. Americans may get paid to trade in their combustion vehicles for electric vehicles, too.
However, until tangible EV-friendly legislation lands on Biden’s desk, don’t bank too hard on federal support. It may not happen any time soon, if it happens at all. For now, pay attention to the markets and market projections from trusted firms.
The Top EV Stocks to Watch Right Now
Which stocks could make the best wise investments in electric vehicles? We’ve already got some winners in this young industry, but we can expect some new and unexpected ones over the next decade.
Let’s just get this one out of the way: Tesla ($TSLA). Tesla’s an obvious pick for a few reasons. For one, its stock went from $88 a share in March 2020 to over $800 a share at the time of this writing. Second, Tesla makes most of its core parts in-house, including its chips and batteries. Third, the company’s founder and CEO, Elon Musk, possesses a lot of media savvy; the company has spent considerably little on marketing, yet the brand is omnipresent. So there’s some celebrity technocrat power behind the company, as well. And fourth, Tesla just gained access to the Chinese market, which buys more EV units than any other country (though the company may soon encounter some regulatory hiccups there).
Tesla ($TSLA) stock price from 2017 through 2021. Image via Yahoo Finance
However, Tesla’s race to the top may encounter some bumper-scraping bumps. First, its vehicles come with hefty price tags. Its most affordable model, the Standard Range Plus Model 3, costs about $40,000. Additionally, the company gets sued quite often, which can cause dips in stock price, not to mention diminish consumer confidence. And finally, Musk’s star status sometimes brings problems for investors, as his antics and public statements have gotten both him and his company into trouble.
While everyone’s raving about Tesla, another company made a surprise performance this past year: NIO ($NIO).
NIO’s stock price doubled since November 2020. According to the Russell 1000, in 2020, NIO ranked among the top three for Best Value EV Stocks, Fastest Growing EV Stocks, and EV Stocks with the Most Momentum. Tesla only ranked top among two of those categories.
Other picks to consider: Kandi Technologies ($KNDI), which makes affordable EVs; Workhorse Group ($WKHS), which is vying to replace the US Postal Services trucks; and Arcimoto ($FUV).
That last one, Arcimoto, and another company, Electrameccanica Vehicles ($SOLO), specialize in single-passenger, three-wheeled EVs. While these small EVs may seem like glorified Power Wheels for adults, note that five-passenger sedans may not rule the green society of the future, where minimalism will reign as one of the highest virtues. Getting married and raising children are no longer en vogue as they once were. Single, working adults in their 30s and 40s who don’t have kids are growing as a consumer group, and this trend may continue for years. The stock prices for these two companies suggest investors are betting on these social shifts, as well. Arcimoto’s stock price swelled 50% since November 2020, and Electrameccanica’s price doubled over that same period.
Don’t forget that traditional automobile companies, like GM, Nissan, and BMW, already make or plan to make their own EVs. Jaguar and Porsche offer some sexy luxury EV sports car options, too. So if you already own stock in these conventional auto companies, you may want to hold onto them. They understand the combustion engine is on its way out, and they’re all attempting major moves to catch up.
Tech companies not known for making cars could also make excellent bets. Apple, Inc. may be developing its own EV, and Alphabet (the company behind Google) is working on a self-driving EV with Volvo via its Waymo subsidiary. Since tech giants like Apple and Alphabet already churn out decent dividends, investing a few more bucks into them probably won’t hurt.
Electric Vehicle ETFs and Ancillary Businesses to Watch
If you’re new to investing, keeping track of individual companies may lead to headaches. Fortunately, you can invest in exchange traded funds, or ETFs. ETFs are essentially entire investment portfolios in a particular industry or market, backing the best performers in their fields. Some well-to-do ETFs that deal in EVs include KraneShares Electric Vehicles and Future Mobility Index ETF ($KARS), and Global X Autonomous & Electric Vehicles ETF ($DRIV).
You can also invest in EVs without ever buying stock in a vehicle manufacturer. Ancillary businesses, especially those that deal in batteries or battery parts, will bank nicely during the EV revolution.
All batteries contain two basic components: metals and salts. For metals, look into companies that mine, process, and/or distribute lithium, cobalt, copper, nickel, manganese, lead, zinc, iron, aluminum, cadmium, and graphite. For example, Glencore ($GLNCY) mines more cobalt than any other operation in the world. And Ablemarle ($ALB) is making a killing right now with low-cost lithium.
Image via iStock
New investors may want to skip investing in individual metal suppliers. Instead, consider investing in metals ETFs. Some good bets for industrial metals ETFs include Global X Lithium & Battery Tech ETF ($LIT), Invesco DB Base Metals Fund ($DBB), RICI-Metals ETN ($RJZ), and the United States Copper Index Fund ($CPER).
For good bets among battery manufacturers, check out BYD, Panasonic, Samsung, and LG Chem. Oh yeah, and Tesla makes its own batteries, too.
If ancillary businesses are your thing, do your homework on semiconductor companies, as well. Since EVs rely on electrical conduction, semiconductors must go into every vehicle. Some of the top semiconductor suppliers for auto makers include NXP Semiconductors ($NXPI), Texas Instruments ($TXN; they don’t just make calculators), Infineon Technologies ($IFNNY), and STMicroelectronics ($STM).
ETFs exist for semiconductors, so don’t forget about those. Top ETFs in this sector include iShares PHLX, SPDR S&P Semiconductor (for smaller companies), and Invesco Dynamic Semiconductors ETF.
Which EV Stocks to Avoid — For Now
Most of the pure-play EV companies mentioned earlier focus on passenger vehicles. But if society is going all-in and switching to electric, then commercial vehicles like semi-trucks will be replaced, too.
Unfortunately, the biggest EV commercial truck manufacturers aren’t doing so hot right now. They’ve got a lot of debt and aren’t generating revenue. These include companies like Nikola ($NKLA) and Fisker ($FSR). Even Workhorse ($WKHS), whose stock is soaring at the moment, may not pay out any time soon, especially if it can’t secure any of those big contracts it’s auditioning for right now.
The EV commercial truck market will change in the next couple of years, but for now, there are no clear winners in this sector. Invest at your own risk.
Speaking of risks, steer clear of EV companies whose tech seems too fantastical. For instance, the Japanese company Genepax claimed its car could run on water. Not possible. Genepax folded a few years ago. If you don’t know any chemistry, physics, or engineering, maybe consult a buddy who does before pouring your money into supposedly innovative EV tech.
Finally, another stock you might want to avoid: Tesla. We know, we know. The first half of this article fluffed Tesla like it was going for an AVN Award, but a company’s glowing success today can also mean losses tomorrow.
Tesla’s meteoric rise can’t last forever. Honestly, if you didn’t already own Tesla stock, you probably missed out on its biggest gains (for now). Tesla is no longer a gimmick either. It’s a real, genuine auto maker now, in the same league as Honda, Ford, and BMW. That means Tesla’s success in 2021 will be gauged by the same standards as the automobile giants that came before it. In other words, Tesla will need to lock down some major sales figures over the next four quarters. A decrease in sales one quarter over the next may mean a big dip in its stock price. So invest wisely, and invest carefully.
I Have $500, How Should I Invest It in EV?
Let’s say you got five Benjamins sitting in your bank account. If you’re new to investing in EV, where should you start?
We’re not giving you official investment advice (seek out a licensed financial advisor for that), but we can give you an example of how to divvy up that $500.
Put the first $200 into ETFs that back EVs, such as KraneShares and Global X Autonomous & Electric Vehicles. Split the next $200 among ancillary ETFs, and spread that love across batteries and semiconductors. Then put $50 into that one company you’ve got a great feeling about, and — screw it — drop another $50 on Tesla.
Pay attention to your ETF investments. Know what’s in their portfolios. Over time, you’ll see which of their picks are winners and which are losers, and you can adjust your investments (into ETFs or individual stocks) accordingly.
Every investment is a risk. Don’t invest cash you can’t afford to literally throw away, read up consistently on your invested companies (and their competition), and good luck!
Randy Robinson’s work has appeared in VICE, VICE UK, MERRY JANE, NORML, Rooster, and OUT FRONT Magazine, covering pop culture, business, sex, drugs, science, tech, history, politics, and LGBTQ+ topics. Based in the Mile High City of Denver, Colorado, they’ve been at ground zero of US cannabis legalization since it started.