Driving the Future with Electric Vehicles July 29, 2020

Summary

  • The electric vehicles (EVs) industry is growing rapidly and it is estimated that EVs will reach 10% of global passenger vehicle sales in 2025.
  • The demand for EVs will be driven by three main factors – (i) policy support, (ii) technological advancement and (iii) EV charging infrastructure.
  • Global warming and environmental degradation will further accentuate the need to replace traditional internal combustion engine vehicles (ICEVs) with EVs.
  • Investors can gain exposure to EVs-related industries via ETFs like IDRIV, DRIV, XMOV, LIT and 2845.HK


Introduction

The meteoric rise of Tesla (NASDAQ: TSLA) share price in 2020 has brought a lot of attention to the electric vehicles (EVs) industry. The electric car maker and clean energy solutions provider has seen its share price, which is notorious for its volatility, surged over 200% Year-to-Date (as of 9 July 2020).

There is no doubt that the EVs industry is expanding exponentially. In 2018, the global electric car fleet increased by 2 million units and exceeded 5.1 million units, almost doubling the number of new electric car sales in 2017.1 According to BloombergNEF (BNEF), EVs will reach 10% of global passenger vehicle sales in 2025, with that figure rising to 28% in 2030 and 58% in 2040.2

Going forward, the demand for EVs will be driven by three main factors – (i) policy support, (ii) technological advancement and (iii) EV charging infrastructure.


Policy Support

Government policies play a vital role in the adoption of EVs. Leading countries in the EVs industry often use a variety of measures to stimulate demand for EVs. To illustrate, fiscal incentives are introduced to lower the purchase prices of EVs to bridge the cost gap between EVs and internal combustion engine vehicles (ICEVs). Regulatory measures, such as lower toll or parking fees, can boost the value proposition of EVs to consumers.

The Chinese government adopted a plan in 2009 to transform the country into a market leader for all-electric and hybrid vehicles.3 China’s intention was to create a world-leading industry that would produce jobs and exports, to reduce urban pollution and its oil dependence. EVs producers are entitled to subsidies to lower their production costs, and the cost saving is expected to trickle down to the end consumers.4

China is now the world’s largest electric car market, accounting for almost half of the global electric car stock, followed by Europe and the US. Didi Chuxing, the world’s largest taxi-hailing and ride-sharing platform, operates the world’s largest EV fleet, with nearly 1 million EVs available on its platform in China.5

Norway, the global leader in terms of electric car market share, has policies and EV incentives in place to support EV adoption. EVs in Norway are exempted from all non-recurring vehicle fees, including purchase taxes and 25% value-added tax (VAT) on purchase. Other regulatory measures, such as reduced parking fees and access to bus lanes, further encouraged the adoption of EVs in the country.6


Technological Advancement

Technological developments are providing considerable cost reductions to the components and manufacturing of EVs. The most expensive component of an EV is its battery. Over the past decade, significant advances in battery technology, particularly the Lithium-ion battery, have led to an increase in the efficiency of the battery leading to longer ranges, alongside a reduction in the size, weight, and cost of the battery.7

There are also developments of alternative battery technologies. Solutions such as aluminium-graphite, graphene-polymer, micro-capacitors, miniaturised solid oxide fuel cells and sodium-based alternatives could be replacing Lithium-ion battery in the future.8

Asian EV batteries manufacturers have regarded cost reduction of utmost importantance in large-scale battery manufacturing processes. These Asian companies are expanding their production capacity in several continents to enjoy economies of scale in a bid to lower manufacturing cost and win lucrative contracts from global automobile makers.9

In addition, the improvement in technology has enabled the redesign of EV manufacturing platforms using simpler and innovative design architecture that capitalises on the compact dimensions of electric motors.

EV Charging Infrastructure

Limited vehicle range and scarcity of charging stations are two significant challenges undermining the adoption of EVs. Even though EVs are much more environmentally-friendly, long charging duration and the lack of charging stations may deter consumers from choosing EVs over ICEVs.

Moreover, petrol stations are ubiquitous, which makes ICEVs more convenient for long-distance travelling.

To overcome this bottleneck of EVs uptake, companies and authorities must work towards increasing the availability of charging infrastructure. By increasing the number of charging stations, it can provide convenience for EVs owners, help alleviate customers’ range anxiety and increase the popularity of EVs.

For the second half of 2020, China will spend almost US$1.5 billion to install 200,000 EV charging facilities throughout the country, 20,000 of which will be public chargers.10 The investment is expected to boost the revenue from sales of new energy vehicles (NEVs) and foster the production of power products and components, as well as the entire supply chain of NEVs.

By 2030, global EV charging infrastructure market will be worth US$40 billion per annum.11 It is predicted that the leading EV markets around the world will install 30 million new charging stations over the next decade – the result of the market for public charging shifting from a policy-driven to a profitability-driven footing.12


Exchange Traded Funds

There are several thematic Exchange Traded Funds (ETFs) listed on exchanges around the world that could benefit from the rise in the EV industry. These ETFs have exposure to EV automakers, batteries manufacturers, charging stations providers or even lithium miners.

ETF iShares Self-Driving EV and Tech ETF Global X Autonomous & Electric Vehicles ETF Xtrackers Future Mobility UCITS ETF Global X China Electric Vehicle ETF Global X Lithium & Battery Tech ETF
Ticker IDRIV DRIV XMOV 2845.HK (HKD)
9845.HK (USD)
LIT
Exchange NYSE Arca NASDAQ XETRA HKEx NYSE Arca
AUM USD 32.54 million USD 24.91 million GBP 11.85 million HKD 1.43 billion USD 679.96 million
Expense Ratio 0.47% 0.68% 0.35% 0.68% 0.75%
Number of Holdings 101 73 77 20 44
Top 3 Holdings
  • Tesla Inc (NASDAQ: TSLA)
  • Apple Inc (NASDAQ: AAPL)
  • Nvidia Corp (NASDAQ: NVDA)
  • Tesla Inc (NASDAQ: TSLA)
  • NVIDIA Corp (NASDAQ: NVDA)
  • Microsoft Corp (NASDAQ: MSFT)
  • BYD Co Ltd (SHE: 002594)
  • NVIDIA Corp (NASDAQ: NVDA)
  • LG Chem (KRX: 051910)
  • BYD Co Ltd (SHE: 002594)
  • Shenzhen Inovance Technology (SHE: 300124)
  • Contemporary Amperex Tech (SHE:300750)
  • Albemarle Corp (NYSE: ALB)
  • Ganfeng Lithium Co Ltd (HKEx: 1772)
  • BYD Co Ltd (SHE: 002594)

ETF information is accurate as of 16 July 2020

Conclusion

The threats of global warming and environmental degradation have accentuated the need to replace ICEVs with emission-free alternatives. As electricity generation becomes significantly less carbon-intensive in the future, EVs may be the best substitutes for ICEVs in terms of reduction of greenhouse gas emissions.13

Technological innovations, infrastructure developments and marketing efforts are growing with steady support from government, automakers and EV-related corporations. These agencies are not just working in favour of promoting the sales of low-emission vehicles but are also taking steps towards favourable regulatory measures, charging infrastructure and fiscal incentives.

Together, these efforts have fuelled the demand for EVs and will result in the structural shift of the automobile and EVs-related industries in the future.

Reference:

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About the author

Joel Lim
ETF Specialist

Joel is the ETF Specialist from the ETF desk in Phillip Securities. He helps to provide sales support and trading ideas to retail investors, remisiers, in-house dealers, and fund managers. Joel also works closely with ETF issuers on new product and business development projects.

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