How to Invest in Electric Vehicles. The electric vehicle, or EV, market has expanded significantly in recent years and is expected to expand further over the next decade and beyond. As government regulations limiting carbon emissions become more stringent, automakers have been forced to shift their focus to electric vehicles.
Many companies are vying for a piece of the EV market, from automakers to suppliers of parts and components used in EVs. The potential for growth attracts investors to the EV industry, but success is far from guaranteed.
Electric Vehicle Statistics:
- According to Kelley Blue Book, electric vehicle sales in the United States will exceed 200,000 in the third quarter of 2022. (KBB).
- According to KBB, the average price of a new electric vehicle in September 2022 was $65,291—a 9.7 percent increase from September 2021.
- According to KBB, Tesla had the highest EV market share in the third quarter of 2022, at 64 percent.
- According to Auto Advocate, Ford and General Motors had the second and third-largest EV market shares in the third quarter of 2022.
- The Biden administration announced in 2021 that by 2030, electric vehicles would account for half of all new vehicle sales.
- According to the U.S. Department of Energy, there are over 48,000 public EV charging stations across the country. Energy Department
- According to the U.S. Department of Energy, California will have approximately 13,600 public EV charging stations by November 2022. Energy Department With over 3,000, New York comes in second.
- According to the Fuels Institute, the average EV owner is a 40-55-year-old male with an annual household income of more than $100,000.
What is the market like for investing in electric vehicles?
Over the last decade, the electric vehicle market has grown significantly. According to the International Energy Agency, only 120,000 electric vehicles were sold globally in 2012. Global EV sales will reach 6.6 million vehicles in 2021. Recent growth has been largely driven by China, which will account for 3.3 million EV sales in 2021, more than the entire world sold in 2020.
Investing in Electric Vehicles:
Top 5 EV companies:
- Nissan (NSANY)
- General Motors (GM)
- Volkswagen (VWAGY)
- Tesla (TSLA)
- Ford (F)
All five of these companies sell electric vehicles, with Tesla clearly leading the market. According to Kelley Blue Book, Tesla had a 64 percent market share of EV sales in the third quarter of 2022. Its Model 3 and Y vehicles account for nearly 60% of EV sales in the United States.
Tesla is unique in that it only produces electric vehicles, whereas other automakers such as Ford and General Motors continue to produce gas-powered vehicles. These legacy manufacturers intend to increase EV vehicle production in the coming years in order to meet regulatory requirements and capitalise on rising EV demand.
Rivian Automotive (RIVN), NIO (NIO), Li Auto (LI), and Nikola are some other EV manufacturers (NKLA). While investors are drawn to the potential for future growth, the EV industry is not without risks. High-growth industries frequently attract a lot of competition, which can reduce the returns investors eventually earn. Stock prices in exciting new industries can also be overpriced, causing investors to overpay for growth that may or may not materialise. Before making a purchase, make sure you understand the companies you’re investing in, or consider a diversified portfolio available through an electric vehicle ETF.
Investing in Suppliers of Electric Vehicles:
Consider the following companies:
- BorgWarner (BWA)
- Albemarle (ALB)
- Aptiv (APTV)
- BYD (BYDDY)
Another way to invest in the EV market is to focus on companies that supply a variety of EV manufacturers, which eliminates the need to predict which manufacturer will be the ultimate winner. Companies such as BorgWarner and Aptiv provide various components used in EVs, while BYD manufactures rechargeable batteries in addition to EVs. Albemarle, on the other hand, is a speciality chemicals company that manufactures lithium compounds used in lithium batteries, which are used in electric vehicles, among other things.
As the overall level of demand for EVs rises, these companies’ EV-related sales should rise as well. Suppliers to EV companies, like pure EV makers, can be bid up to prices that make it difficult for investors to earn attractive returns. Growth does not always occur as quickly as investors expect, and there may be hiccups along the way. Shortages that cause high component prices today can give way to periods of oversupply and falling prices.
Electric Vehicle Pros and Cons:
|Growing industry||Consumers unfamiliar with a product|
|Declining manufacturing costs over the long term may lead to more affordable pricing||High prices for investors|
|Government regulations supporting EV industry growth||Limited charging stations nationwide|
The tailwind provided by changing government regulations that limit carbon emissions and push automakers to focus on electric vehicles is one of the major benefits of investing in the EV industry. This will almost certainly result in growth for the overall EV market for many years to come. Many consumers, however, are sceptical of electric vehicles and are hesitant to buy one. People have been driving gas-powered vehicles for a long time, so it may take years for them to become accustomed to an EV.
There’s also the issue of where to charge an EV if you’re driving a long distance. While many people will charge their EVs at home at night, longer trips will necessitate the construction of a large network of recharging stations similar to the way gas stations exist today. The speed with which this network is built may have a significant impact on how quickly EVs are adopted by consumers.
In the coming years, the electric vehicle industry has the potential to reward investors. It has tailwinds that will likely propel it forward as more consumers transition to electric vehicles over time. However, growth alone is insufficient to generate a profitable investment.
It’s not always clear who will win, whether the industry as a whole will earn attractive returns on capital, or whether EV stocks will be available at reasonable prices. Make sure to thoroughly research any EV investments before making a purchase, and consider using ETFs to create a more diversified portfolio.