As an ex-future mobility research analyst, I spent a lot of time looking at financial statements and there was very little to see. New entrants in the space had no revenues (and if they had revenues then they had no profitability) and there was very little proof that they would hit their targets. Several years later, many of these new entrants have left the market, while some clear winners remain. Legacy automakers have taken the reins and while they have benefited from greater economies of scale, they still suffer from some of the same demand, production, and profitability issues. As a result, electric vehicle (EV) and autonomous vehicle (AV) ETFs are mostly down year-to-date with net outflows. But as the industry resets and clear winners emerge, this could be a potential catalyst for further growth. This is a look at the automotive industry, electric vehicles, and how future mobility ETFs have been affected.
A tale of two autos: legacy vehicles and pure-play electric vehicles
Automakers are lowering their outlooks due to two primary headwinds. The first is lower consumer demand broadly for autos. Latest data from the U.S. Bureau of Economic Analysis show that new auto sales in the U.S. were down 17.8% YTD. And globally, Volkswagen (VOW3)), Stellantis (STLA), and Aston Martin (AML) have slashed outlooks for the year. Volkswagen lowered its forecast for the second time in three months due to weaker demand including China. Similarly, Stellantis cited lower-than-expected sales across regions and competition from Chinese automakers. Aston Martin has also trimmed both its production target and profit margin due to supply chain disruptions and China.
Additionally, automakers are trying to match ambitious targets for electric vehicle production over the next few years. Large automakers like Ford (F) have announced that they would reassess plans to go fully electric in Europe by 2030. Other pure-play EV makers like Rivian (RIVN) have also struggled with production setbacks and haven’t been able to reach profitability. While overall battery EV adoption has increased every year through 2023, the rate of adoption has slowed. So far in the first half of 2024, U.S. EV sales have been up only 7% y/y compared to 47% during the same period last year.
More opportunities for legacy automakers as Tesla and other pure-play entrants lose ground
Among the stories about production challenges, weakening demand, and profitability issues, there are still some green shoots for the industry. The first piece is that the industry has become more “fair game” in the battery electric world. In the beginning. Tesla (TSLA) to dominate the pack, with over 2/3 of U.S. auto sales. Now that number has dwindled to just over 50% in 1H23, which means there’s now more opportunity for other auto manufacturers like Ford, Hyundai, and Kia.
There are also less pure-play manufacturers in the mix now compared to 2020 when SPACs were accelerating the launch of higher risk companies with lofty production targets and no track record. These pure-play manufacturers had exciting growth stories, but many failed to take off due to production and profitability issues and now the main players are established automakers which tend to be “safer” than new entrants.
Future mobility ETFs offer a wide range of electric and autonomous exposure
EV ETFs are mostly down YTD with net outflows. This is an interesting segment of the ETF market, because ETFs can take several approaches. Some ETFs focus more on electric and autonomous vehicle manufacturers, while some focus on other areas in the value chain like battery technology, materials producers, and other enablers. Many of these also hold large-cap technology since companies like Nvidia (NVDA) and Alphabet (GOOGL) since these companies support future mobility technology. While the addition of these companies may boost returns, some investors may see this as a negative because it is less pure-play exposure within the ETFs.
High performing stocks among these ETFs include: semiconductor stocks like Nvidia (NVDA) and industrial transportation equipment companies like Blue Bird (BLBD) and Allison Transmission (ALSN). Low performers include disruptive tech companies like Nikola Corp (NKLA) and Luminar Technologies (LAZR). Nikola is a heavy-duty EV manufacturer which has been down almost 84% YTD. Luminar is a developer of self-driving technology which has been down 73% YTD.
There are several future mobility ETFs which include electric vehicle and autonomous vehicle technology:
- The Global X Autonomous & Electric Vehicles ETF (DRIV ) is the largest ETF of the group with over $460 million in assets. Global X is known for its line of thematic ETFs and DRIV holds companies across the future mobility chain. This ETF tracks an index of companies of electric vehicle manufacturers (15 companies), electric vehicle components (15 companies) and materials (15 companies), and autonomous vehicle technology (30 companies). Companies are ranked within their segment based on the frequency with which each company is mentioned relative to their segment’s keywords. Because of the focus on technology, the ETF holds EV enablers which may have broader businesses like Nvidia (NVDA), Microsoft (MSFT) and Alphabet (GOOGL). Eligible companies have minimum market cap of $500 million and are listed in a developed market, South Korea, or Taiwan.
- iShares Self-Driving EV and Tech ETF (IDRV ): this ETF casts a wider net geographically and tracks an index of both developed and emerging market companies that are EV/AV manufacturers, autonomous software companies, EV/AV technology companies, EV battery producers, EV battery materials producers, and EV charging companies. These companies must generate 50% or more of their revenue from their respective segments (which is why we aren’t seeing and mega-cap tech names in this ETF). Additionally, the weight of autonomous software and technology companies is capped at 25% total—making this ETF more focused on pure-play companies rather than enablers. The minimum market cap is $300 million, which allows it to hold newer entrants with less established assets.
- KraneShares Electric Vehicles and Future Mobility Index ETF (KARS ) includes companies that are expected to derive significant revenues from EVs, energy storage technologies, autonomous technology, lithium and copper mining, and hydrogen fuel cells. One of its big differentiators is that it includes companies from Mainland China, which is the world’s largest EV market. It’s two largest constituents are Chinese companies—Contemporary Amperex (300750 CH) and BYD (002594 CH)—and it has over 47% of its total weight in Chinese companies. This ETF also has a large portion of its holdings in materials company—over 31%.
- SPDR S&P Kensho Smart Mobility ETF (HAIL ): Two things set HAIL apart from its peers at first glance—it is U.S. focused rather than globally focused, and it also is equal-weighted. The ETF tracks an index which focuses on companies in EV/AV technology, commercial drones, and advanced transportation systems, which allows it to have some unique holdings relative to its peers like Blade Air Mobility (BLDE) and Ehang (EH) which are two air mobility companies.
- First Trust S-Network Future Vehicles & Technology ETF (CARZ ): this ETF holds a combination of pure-play and diversified companies. 18.5% of its weight is in Magnificent 7 stocks (excluding Tesla since Tesla is an EV company) and also includes other large-cap tech like Taiwan Semiconductor (TSM), Advanced Micro Devices (AMD), and Qualcomm (QCOM). But the boost from large-cap semiconductor and technology stocks has been counteracted by nearly all of this ETF’s lower half of weightings in the red. Like HAIL, this ETF also has a large allocation to U.S stocks.
- Other ETFs in this space include: the Fidelity Electric Vehicles and Future Transportation ETF (FDRV ), the SmartETFs Smart Transportation & Technology ETF (MOTO ), and the NYLI Cleaner Transport ETF (CLNR ). Adjacent ETFs to this sector also include battery ETFs like the Global X Lithium & Battery Tech ETF (LIT ) and the Amplify Lithium Battery & Technology ETF (BATT ).
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