Investors may want help navigating electric vehicle investing, particularly after Tesla Inc.’s weaving all over the road in the past few years. The Global X Autonomous and Electric Vehicles ETF (DRIV) might be the road map they need.
While Tesla is the EV leader with the highest market cap, DRIV is a pick-and-shovel play on the industry, holding the companies that provide goods, services and technological innovation to the sector.
While the comparison between Tesla and DRIV may not be perfect, both the stock and ETF are likely to rise and fall with the growth of the EV sector, which is a linchpin of environmental, social and governance investing, as it addresses climate change concerns.
Tesla shares had a lousy 2022, falling 65%, with many market analysts blaming the drop on Elon Musk’s preoccupation with his Twitter acquisition. TSLA shares closed at $123.18 on Dec. 30, 2022.
Meanwhile, DRIV also fell, although not as steeply, with a 35% decline to close the year at $19.87.
Tesla shares may have gotten a bit overpriced. Speculative buying lifted the stock from $23.37 in March 2020, when the global pandemic gripped markets across all asset classes, to a $414.50 high in November 2021.
Elon Musk’s innovative reputation caused Tesla shares to soar nearly eighteenfold in 20 months. DRIV fell to an $11.06 pandemic-inspired low in March 2020 and rose nearly threefold to $32.37 over the same period.
Tesla’s fourth-quarter earnings Jan. 25 relit the speculative bullish fuse. As of Feb. 3, TSLA has soared 53% this year, while DRIV has lagged, gaining nearly 13% since the end of 2022, according to ETF.com data. Tesla stock took another leap Feb. 3, when the Biden administration expanded EV tax credits.
Tesla Remains EV Sector Bellwether
Tesla is not only the leading EV maker, it has the highest market cap of any of the leading publicly traded automobile manufacturers.
TSLA’s market cap is approaching $600, more than double Toyota’s and more than the second, third, fourth and fifth leading automakers combined.
Tesla ranks sixth in earnings, 11th in revenues and 27th in price-to-earnings ratio. However, it is third in operating margin, and most market participants would agree Elon Musk makes the company the most-watched automaker worldwide and a bellwether for automobiles, green energy and innovation.
DRIV’s Holistic EV Sector Approach
DRIV’s holdings make it a nuts and bolts play on the companies that supply required components to the EV and autonomous vehicle industry.
DRIV’s fund summary states it uses a “proprietary natural language processing algorithm to identify companies with exposure to EVs, EV components, and autonomous vehicle technology.”
The top holdings read more like a technology ETF than an EV product: Nvidia, Apple, Qualcomm, Microsoft and Toyota make up the top five.
About 2% of the fund is in Tesla, according to ETF.com data. It also holds Alphabet, Honeywell, Intel, General Motors, Ford and Pilbara Minerals, the Australian lithium mining company.
ESG, Climate Change Initiatives Favor the Sector
ESG investing is becoming a significant factor for many capital pools. Considering it as an integral part of investment calculus can lead to a better understanding of companies’ goals, strategies and behaviors. As the ESG investing approach becomes ubiquitous, it is a form of passive activism, with investors and fund managers putting their capital in companies they bless from a social and political perspective.
The Biden administration has indicated its approval of ESG investing, allowing retirement fund managers to select stocks of companies based on social and other issues.
Meanwhile, as the U.S. addresses climate change by supporting alternative and renewable fuel productions and consumption while inhibiting fossil fuels to reduce carbon footprints, the EV sector has taken center stage for many ESG investment portfolios. Any investment vehicle that supports climate change activism via technology is a candidate for ESG investors, and DRIV is an ETF that could qualify for membership.
DRIV vs TSLA, Metrics vs Sentiment
Fundamental metrics influence the path of least resistance of asset prices. As of Jan. 30:
- DRIV’s blended P/E ratio was 30.41, while TSLA’s was over 44.
- DRIV pays shareholders a blended 1.06% dividend but charges a 0.68% expense ratio. TSLA pays no dividend and, as a single stock, has no management fee.
- At $23.47 per share, DRIV had just above $896 million in assets under management. At $170 per share, TSLA was worth nearly $537 billion.
DRIV is a diversified technology ETF product, while TSLA is a bet on Elon Musk’s ingenuity and innovations and the EV maker’s future market penetration.
The one-year chart shows DRIV’s pattern of lower highs and lower lows. However, at $24.40 on Feb. 1, the ETF is threatening to break the bearish pattern, which could follow through on the upside.
DRIV began trading in April 2018 and has been as low as $9.32 in March 2020 as the global pandemic gripped markets across all asset classes, and as high as $32.37 in November 2021, when the tech-heavy Nasdaq reached its all-time peak.
At this price level, DRIV is above its midpoint and could offer value, as it is an attractive ETF for ESG investors and those seeking exposure to technology companies addressing climate change.