Electric, Self-Driving Cars Dominate Automotive ETFs

Electric and self-driving vehicles have almost completely displaced traditional cars in the world of exchange-traded funds, even though they are a long way away from doing so on the open road. 

The majority of funds with exposure to the automotive industry now focus on the next generation of vehicles, leaving the traditional auto industry in the rear-view mirror.  

For example, the First Trust NASDAQ Global Auto Index Fund (CARZ) has tracked a global index of car company stocks since 2011. But in January 2022, the fund changed into the First Trust S-Network Future Vehicles & Technology ETF (CARZ), which tracks an index of companies that make electric or self-driving vehicles or provide technology for their production. 

In fact, the only notable exchange-traded products on U.S. markets that offer pure exposure to the traditional auto industry are two, small three-times leveraged exchange-traded notes, the MAX Auto Industry 3x Leveraged ETN (CARU) and the MAX Auto Industry -3X Inverse Leveraged ETN (CARD), according to etf.com and other ETF databases. Those funds have a combined $8 million in assets between them.

The shift reflects a change in what is perceived as the future of the automotive segment, and could be the new investor norm for years to come. 

“Investor appetite [has] shifted,” said Ryan Issakainen, ETF strategist at First Trust Portfolios. “They were looking for exposure to the next generation of vehicle, and in response to shifting demand we decided to make a change to the fund.”  

The fund still holds car companies, featuring the expected big names like Tesla, Toyota and Ford, but its largest three holdings are now Alphabet, Microsoft and Nvidia, which make up roughly 15% of the fund. 

“There’s a lot of tech that goes into the newer generation of cars, and with electric cars especially, there’s a lot more tech and fewer moving parts,” said Issakainen. “To include the value chain of electric vehicles, you have to include the companies that make the software and tech hardware that make up the guts of the vehicle.” 

High Tech in Electric Car ETFs 

This increased demand for tech in cars isn’t just limited to electric vehicles, with 40% of a new car’s cost stemming from electronics as early as 2020, up from just 18% in 2000 according to Car and Driver. 

Self-driving cars have gained only limited approval from regulators and electric vehicles make up less than 10% of new U.S. car sales.

One reason for the change in investor interest was the performance of car companies in the preceding decade. 

From the month of CARZ’s inception in May 2011 to the end of January 2022 when the fund was revamped, Ford gained 18%, Volkswagen gained 44% and Toyota gained 119%. The U.S. stock market, by the SPDR S&P 500 ETF Trust (SPY) gained 221% over the same period.  

For comparison, Chinese electric car company NIO rose 605% over that period, while Tesla rose 14,340%.