EV Market Growth Trend May Not Be So Inevitable

The MIT Technology Review has recently identified the “inevitable EV” among its 10 breakthrough technologies of 2023. 

“Electric vehicles are finally becoming a realistic option. Batteries are getting cheaper and governments have passed stricter emissions rules or banned gas-powered vehicles altogether,” the authors noted. “Major automakers have pledged to go all-electric, and consumers everywhere will soon find there are more good reasons to buy an EV than not.” 

Well, this week’s flurry of earnings reports from electric vehicle manufacturers suggests the growth may not be that straightforward or inevitable. 

Rivian Automotive Inc.’s shares dropped 18% the day after the company posted mixed results for the fourth quarter on Feb. 28, and its production estimate of 50,000 vehicles this year fell below analysts’ projections of 63,000. 

NIO, the Chinese automaker based in Shanghai, didn’t have a great quarter either. The company posted a loss of 51 cents a share on revenue of $2.33 billion. BYD Co. showed solid sales in China in its most recent report. 

The latest reports from EV automakers point to an “unsettling trend” that spells bad news for EV names in the short term: the “demand evaporating as potential customers look for deals or hold off on purchases altogether,” Reuters reported. 

While issues vary from company to company, the headwinds will certainly impact EV industry growth in the immediate term both in the U.S. and globally. 

“EV growth is expected to slow in 2023 due to macro headwinds caused by inflation, higher rates, and continued supply chain disruptions for some automakers,” Anthony Sassine, senior investment strategist at Krane Funds Advisors, told ETF.com.  

Supply Issues Easing

In the longer term, many analysts are bullish on the market as a whole. 

“We should see supply issues ease by the second half,” Sassine said. “The growth expectation for 2023 is approximately 40% compared to 66% in 2022.”   

Given uncertainty for the market as a whole and individual challenges for each carmaker, this is where the ETF wrapper comes in. 

As Sassine puts it, “Why take a significant single-stock risk when the whole pie is growing?”  

The KraneShares Electric Vehicles and Future Mobility Index ETF (KARS), which tracks a market-cap-weighted index of stocks involved in the production of electric vehicles, is up 9% year to date, according to ETF.com data. 

The Global X Autonomous & Electric Vehicles ETF (DRIV), which is an AI-based fund tracking development, production or supporting technology of autonomous and electric vehicles, is up 17% this year. 

For investors willing to bet on specific EV names, there are plenty of options also. 

The leveraged Tesla exchange-traded fund, the GraniteShares 1.25x Long TSLA Daily ETF (TSL), returned 82% this year as of March 1, according to Bloomberg data. 

While there may be hiccups in the near term, Sassine and others remain bullish about the long-term prospects for the EV space. 

Following Tesla’s Investor Day presentation in March, many found the company’s “Master Plan 3,” lacking specifics and definitive catalysts for growth in the immediate term.  

That hasn’t deterred Tesla enthusiasts or Tesla ETF bulls. 

“There are 1.3 billion vehicles globally and only 26 million, or less than 3%, of total vehicles are EV,” Sassine notes. “While some EV startups like Rivian or XPeng Inc. are struggling in the short term, the majors, like Tesla and BYD, are thriving.” 

Email Daria Solovieva at [email protected] or follow her on Twitter @dariasolo