One segment of the stock landscape, which been hogging the attention of investors over the past week is undoubtedly the “green,” or clean energy, ETF area. Products in this corner of the investing world have crushed the broad benchmarks by wide margins lately.
iShares Global Clean Energy ETF ( ICLN Quick Quote ICLN - Free Report) (up 11.1%) and Invesco Solar ETF ( TAN Quick Quote TAN - Free Report) (up 15.2%) have breezed past the S&P 500 (down 4.7%) in the past one month.
Recently, a spate of good news has driven the clean pack higher. Plus, decent valuation of the space after a tough 2021 is acting as a useful catalyst for a potential rally in 2022. The space has suffered a lot in recent months due to rising rate worries. We also believe that China’s (which is one of the renewable energy leaders) regulatory crackdown and phasing-out of subsidies probably had hit the clean energy space last year.
But the story could be rosy this year. This is especially true given that oil prices are rallying due to the Russia-Ukraine war and the geopolitical crisis in the Middle East. Though oil demand is rising, it is still tough to boost product due to labor shortage, supply chain woes and rising raw material prices. So, oil rally is probably here is stay. No wonder, investors will start exploring clean options, which are cost-effective as well.
Goldman Sachs has picked Tesla, Buffett-backed BYD and some more electric vehicle stocks to play a
“greenflation” as quoted on CNBC. Let’s explore the possibilities in the electric vehicle field. What’s Happening in the Electric Vehicle Sector?
There has been a global drive on auto manufacturers to cut CO2 emission. The very move to bolster clean energy has led to auto manufacturers’ shift from ICE to EV. Europe and China have apparently been leading the way in CO2 emission, thus promoting EV sales.
Per Deloitte, China will hold 49% of the global EV market by 2030, Europe will account for 27%, and the United States will take about 14% share. Deloitte also forecast that China will achieve a domestic market share of about 48% by 2030, while the United States will have it at 27% and Europe is expected to hold a 42% share.
Growing investments in the sector, ranging from batteries to charging cars, will see companies spinning off units as well as go public, said Patrick Steinemann, co-head of Global Mobility Group Investment Banking at Bank of America, the Bloomberg article noted. The global Electric Vehicle Market size is projected to grow from 4,093 thousand units in 2021 to 34,756 thousand units by 2030, at a CAGR of 26.8%, per a report from Marketsandmarkets.
The U.S. government’s bipartisan infrastructure bill includes $7.5 billion to create charging stations all across the United States, which would inevitably help spur EV adoption in the country. In addition, the bill comprises another $7.5 billion to transition buses and other public transportation away from fossil fuels and to zero-emission options.
Inflationary pressure is also not a worry as companies would pass on the rising costs to consumers. Tesla raised prices in early March on its most affordable Model 3 sedan and Model Y SUV by $1,000. Fat price hikes were noticed in the other segments too. The Model 3 is up another $2,000-$3,000; the Model Y has increased by $3,000; the Model S sedan jumped $5,000-$6,000; and the price tag for the top-tier Model X SUV is up $10,000-$12,500, per cars.com.
Right Time to Buy Electric Vehicle ETFs?
The sheer demand for the EV segment would boost the sector ETFs. Most big-shot companies, including Apple (AAPL), are also eyeing the space. A few electric-vehicle ETFs like
Global X Autonomous & Electric Vehicles ETF ( DRIV Quick Quote DRIV - Free Report) , SPDR S&P Kensho Smart Mobility ETF ( HAIL Quick Quote HAIL - Free Report) , iShares Self-Driving EV and Tech ETF ( IDRV Quick Quote IDRV - Free Report) and Simplify Volt RoboCar Disruption and Tech ETF ( VCAR Quick Quote VCAR - Free Report) will gain from the EV’s growing acceptance.