As the transition toward electric vehicles (EVs) continues to gain momentum, the industry is taking this green mobility revolution to the next level. With EV infrastructure becoming more widely accessible, investors are turning their attention to this trend as consumers embrace the new technology.
Auto veteran Ford and EV superstar Tesla announced a deal to share access to charging networks. The news lifted both companies’ stock prices by over 7%, signaling investors view the partnership as a net positive for the industry.
The pace of the EV transition is accelerating. An anticipated two-thirds of all new cars in the U.S. will be electric vehicles (EVs) by 2032, according to new auto emissions standards proposed by the Biden administration, positioning the U.S. to lead the clean vehicle revolution.
Meanwhile, major American automakers like General Motors have committed to retiring the combustion engine by the middle of the next decade, releasing only zero-emission models from 2035 onwards. Petroleum-powered cars and trucks will soon become a relic of the past.
Even as the trend gains momentum, there remains plenty of potential for investors to tap the EV market and grow residual income over the long term. According to a 2023 report from Goldman Sachs, EV sales will soar to about 73 million units in 2040, up from around 2 million in 2020.
Experienced investors in the space are repositioning themselves to optimize their returns in this rapidly evolving market. However, what approach is ideal for regular investors looking to increase their exposure to this industry as part of a deliberate long-term investment strategy?
This article will explore the state of the EV industry today and consider possible ways investors can take part in the action.
Shifting Up a Gear
The EV market has shifted up a gear in the years following the pandemic, driven by environmentally conscious consumers as well as government regulations.
Industry poster child, Tesla, made incredible gains in the stock market, while international players landed with successful IPOs. Brands like Vietnam’s VinFast and China’s NIO continue to make inroads, with VinFast planning to sell 50,000 vehicles this year – nearly seven times more than their total sales numbers for 2022.
These brands’ innovative and fairly priced models are making EVs more accessible to a wider swathe of drivers around the world. NIO is rumored to enter the American market in 2025, while VinFast became the first Vietnamese automaker to sell cars in the U.S. earlier this year. These brands give investors more options for diversifying their portfolios.
As competition grows, stock picking in this sector is getting more nuanced. For instance, while Tesla remains the undisputed industry leader and, like Apple, is unmatched when it comes to profit margins, China’s Li Auto is currently growing faster and can convert much more of its revenue to positive operating cash flow, according to recent analysis by Pacifica Yield.
Investors don’t need to choose between exclusive EV brands anymore. Familiar brands like Chrysler, GM, and Volkswagen are also on the playing field. All have announced ambitious transition plans as they phase out traditional cars in the coming years, a testament to the generational shift to EVs over the next decade and beyond.
EVs are about more than just the cars themselves. The supply chain to get electric wheels on the road offers more potentially fertile ground for investment.
Adding exposure to upstream industries like lithium mining to one’s portfolio is one option. The mineral is fast becoming ‘the new oil’ as it is needed to make the batteries that power EVs. McKinsey predicts demand for lithium-ion batteries will continue to grow at a compound annual growth rate of 30% over the next decade.
Industry analysts recommend broadening this energy exposure even further to other sustainable sectors.
“Aside from EVs, renewable sectors that are good for investment include solar, wind, and hydrogen fuel cell technology,” Jorey Bernstein, CEO of Bernstein Private Wealth. “These sectors have similarities with EVs in that they are all environmentally friendly and sustainable sources of energy.”
Broadening exposure to the minerals that power EVs promise to increase yields should the industry grow as expected. This provides an attractive option for passive investors who usually focus on leading index-tracking ETFsrather than picking market stars like Tesla.
The outlook for EV investing appears promising. With growing environmental awareness and technological innovation, the sector is forecast to soar. Government support is also a boon. The tax credits for EV purchases have attracted car owners looking for more ways to save on federal tax filings.
The days when having EV exposure was confined to holding Tesla stock are long gone. The range of investment options within the industry today is diverse and expanding. However, challenges like competition, regulatory uncertainties, and issues around supply chain resilience remain. Despite these hurdles, the continued global push towards EV adoption means the space will likely remain a hot spot on the investing map for the years to come.
Josh is a financial expert with over 15 years of experience on Wall Street as a senior market strategist and trader. His career has spanned from working on the New York Stock Exchange floor to investment management and portfolio trading at Citibank, Chicago Trading Company, and Flow Traders.
Josh graduated from Cornell University with a degree from the Dyson School of Applied Economics & Management at the SC Johnson College of Business. He has held multiple professional licenses during his career, including FINRA Series 3, 7, 24, 55, Nasdaq OMX, Xetra & Eurex (German), and SIX (Swiss) trading licenses. Josh served as a senior trader and strategist, business partner, and head of futures in his former roles on Wall Street.
Josh's work and authoritative advice have appeared in major publications like Nasdaq, Forbes, The Sun, Yahoo! Finance, CBS News, Fortune, The Street, MSN Money, and Go Banking Rates. Josh currently holds areas of expertise in investing, wealth management, capital markets, taxes, real estate, cryptocurrencies, and personal finance.
Josh currently runs a wealth management business and investment firm. Additionally, he is the founder and CEO of Top Dollar, where he teaches others how to build 6-figure passive income with smart money strategies that he uses professionally.