Playing a boom in electric vehicles

Key Takeaways

• Growing demand for electric vehicles (EVs) presents a long-term opportunity for stock investors.
• Owning EVs is becoming more practical and affordable, and automakers are releasing increasingly efficient models.
• Megatrend ETFs can help capture the potential of EVs while keeping investors diversified.

Sales of electric vehicles (EVs) hit a record in 2020, a milestone fueled by climate-conscious buyers who can be choosier and pay less in an increasingly competitive market.¹

For investors, a confluence of trends has turned the EV industry into one of the fastest-growing corners of the low-carbon economy and could represent a long-term growth opportunity. Recent technological advances are making the production and ownership of EVs easier and more efficient. For example, the average cost of lithium-ion batteries, the key technology that powers EVs, has fallen 88% over the past 10 years — dropping the price of EVs closer to comparable gasoline-powered vehicles.² In some cases, battery charging times have fallen to as low as five minutes, on par with filling up a tank with gasoline.³

Looking ahead, fossil-fuel regulations, tax breaks, and increased renewable infrastructure spending all are poised to accelerate demand for EVs. The Biden administration’s proposed infrastructure plan, which includes $174 billion to boost EV sales — including $15 billion to build 500,000 charging stations and $100 billion for new consumer rebates — could accelerate U.S. EV adoption.⁴

Automakers including Volkswagen, Volvo Cars, and General Motors all have committed to EV-only sales by dates ranging from 2026 to 2040; each is also bringing to market new EV models and ramping production.⁵

The EV boom is global. There were about 17,000 electric cars were on the world’s roads in 2010; by 2019, this number had grown to 7.2 million —  almost half of which were in China.⁶ What’s more, out of the 136 EV battery factories being planned or in operation globally, a staggering 101 are in China.⁷

Look to megatrend ETFs

Investors looking for targeted exposure to the full value chain of the global EV market might consider equity index-tracking exchange traded funds (ETFs) that include international EV manufacturers, battery producers, and battery material suppliers.

We call this megatrend investing because, even when a big-picture investment trend such as EVs is clear, it can be hard to pinpoint which individual companies will thrive over the long haul. Index-tracking megatrend ETFs can provide targeted access to themes including EVs while remaining diversified enough to help reduce individual stock risk.