Going into 2021, the new darlings of Wall Street are electric vehicle (EV) makers and the manufacturers that support them with batteries and parts.
Wall Street can spot a new trend a mile away. It’s all about Green and Clean, and EV’s are exactly that. UK, European and Chinese lawmakers have been charging at warp speed towards electrifying their roads, in order to decrease noxious emissions.
In the U.S. under Trump though, the government was pushing in the exact opposite direction, and that is towards the lucrative oil industry. But with Biden as the new President, everything has changed. Biden has made it clear in his manifesto that climate change is a key proponent of his policy and his objective is to reach a national target of zero carbon emissions by 2050.
Competition among EV-makers is becoming ever more fierce, with General Motors (GM) announcing plans to launch 30 fully electric cars by 2025, representing 40% of its sales and new EV-makers appearing almost overnight.
That said, Tesla (TSLA) is overbought, Nio (NIO) is operating at a loss and GM is trading at 6.7 times consensus earnings estimate for the next year
Looking to the analyst community, Nio earns a Moderate Buy analyst consensus based on 8 Buy ratings and 4 Holds. Its average price target of $49.84 implies 13% upside potential. (See Nio stock analysis on TipRanks)
Meanwhile, the pros are cautious about Tesla. Its Hold analyst consensus breaks down into 7 Buys, 11 Holds and 7 Sells. At $455.22, the average price target implies 31% downside potential. (See Tesla stock analysis on TipRanks)
Is there another way to gain access to this growing market? Yes, there is and it’s via ETFs. ETFs can give you exposure to a huge range of EV-makers and the companies that support them, allowing investors to take a diversified view on this industry, rather than trading each of the components individually. It is a way to speculate on a theme or an industry. Wall Street seems to believe that EVs are the theme of 2021, and this is a way to gain exposure to that idea.
The overall objective of EV ETFs is to track the investment results of a basket of stocks comprised of companies that are linked to electric vehicles, battery technologies and autonomous driving technologies. An ETF is a long-term approach to investing with regards to growth and gives investors the ability to invest in global stocks from both developed and emerging economies.
Take a look at the chart below, which compares the value of the S&P 500 and the DJIA to SPDR S&P Kensho Smart Mobility ETF HAIL, Global X Autonomous & Electric Vehicles ETF DRIV and iShares Self-driving EV & Tech ETF IDRV over the course of the last six months. Remember, this shows a year when Trump was in office with his pro-oil sentiment, and before EV makers really made the headlines (apart from Tesla).
So, is 2021 the year of the EV? If Wall Street thinks so, we won’t argue.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
