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[Editor’s Note: Watch the full video above.]
There are few investment opportunities that compare to the electric vehicle (EV) space, and investors would be smart to consider allocating some of their portfolios to this multidecade growth story. That’s according to Anthony Sassine, senior investment strategist at KraneShares, who sat down with me earlier today to discuss all things EV.
Speaking at ETF.com’s webinar, “What’s Driving the Electric Vehicle Market & How to Invest,” Sassine said that the transition to electric vehicles from traditional internal combustion engine vehicles is a trend that will last for decades.
Indeed, even though EVs get a lot of attention, they are still a relatively small portion of the overall vehicle market—around 6% globally—with penetration higher in China and Europe than in the U.S.
“There are 1.2 billion to 1.3 billion cars on the road. Only 16 million of those are electric vehicles. Over the next 30 to 40 years, that equation is going to flip [with EVs making up the vast majority of vehicles on the road],” Sassine said.
I asked him what was driving consumers to purchase EVs. Sassine told me that there is a plethora of reasons: consumers being more concerned about the environment; the introduction of attractive new car designs and technologies; government policies/subsidies; and cost reductions.
He mentioned that battery costs, which make up 30-40% of the cost of an EV, have come down 80% over the last six to seven years: “We’re seeing a lot more innovation in that space—innovative chemistries and innovative ways of building these batteries in a way that makes them a lot cheaper and makes the car cheaper.”
While we haven’t reached the point where electric vehicles are at cost parity with conventional internal combustion engine vehicles, Sassine said that we are very close to reaching that. And when that happens, he thinks we are going to see even more EV adoption by consumers.
After making a strong case for the continued growth of the EV market, Anthony discussed what many investors were eager to learn about—the investment opportunities in the space.
Everyone is well aware of the eye-popping performance of Tesla, the pioneering automaker that went from a small niche automaker to a $1 trillion behemoth today. But despite the strong performance, Sassine said that investing in a single stock, even one as compelling as Tesla, is a risky way to get exposure to the EV theme.
“Traditionally, retail investors have invested in specific companies like Tesla or Nio,” he said, “but then they are exposed to stock-specific risk.”
Issues related to a particular company that have nothing to do with the industry at large could create a lot of volatility in a single stock, making it a much riskier investment than holding a more diversified basket of stocks.
Investors in single stocks could also miss out on strong performance in some areas of the EV industry in which their companies don’t operate. Sassine pointed out that mining companies surged 80% last year, outperforming EV manufacturers, which rallied 30%.
That’s why he suggests investors focus on the whole ecosystem, not just the manufacturing of EVs. That includes batteries, mining, semiconductors, charging stations and even autonomous vehicle technology.
Sassine pointed to his firm’s ETF, the nearly $300 million KraneShares Electric Vehicles and Future Mobility Index ETF (KARS), as a good option for broad, comprehensive exposure to the EV space. The ETF tracks the Bloomberg Electric Vehicles Index.
About 35% of the ETF is in electric vehicles; 25-27% is in batteries; 18-20% is in EV components; 11% is in mining; 5-7% is in hydrogen; and a couple percent is in charging stations and autonomous vehicles.
Geographically, it has 35% exposure to China; 20-25% exposure to the U.S.; and 15-20% to Europe.
Sassine said that one of the biggest selling points of the ETF is that it has very little overlap with broader stock market indices. Only 2.7% of the portfolio overlaps with the MSCI ACWI, and only 3.1% of the portfolio overlaps with the S&P 500.
“These are growth companies. You may get some volatility, but given the low overlap [with broad indices], it means KARS has a low correlation to the rest of your portfolio, and it can be a good diversifier and a good potential alpha generator in the long term,” Sassine explained.
The aforementioned summary only scratches the surface of what Anthony and I discussed on our webinar. We went into all sorts of additional topics, including how EVs relate to ESG; whether the recent sell-off in growth stocks presents a good entry point for investing in EVs; whether traditional automakers like GM and Ford can compete with EV upstarts like Tesla and Rivian; and much more.
Here is just a sampling of interesting quotes from Anthony:
“If you look at electric vehicles, the production of the cars pollutes more than the production of ICE cars, but you have to look at the entire life cycle of the cars. If you’re using pure renewable energy to charge the car, it takes six months for an EV to become greener than ICE. If you use a mix, it’s 1 1/2 years. If you use coal, its five to seven years.”
“People are willing to pay more [for EV stocks] because of the certainty of growth.”
“Right now, you have China, U.S. and Europe leading the way [with EVs], but after that, you’ll have India, Indonesia and Nigeria joining the fray, extending the growth of the sector.”
Follow Sumit Roy on Twitter @sumitroy2