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A New ETF Plugs Into Electric Vehicle Demand

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A New ETF Plugs Into Electric Vehicle Demand

As the exchange traded funds (ETFs) industry evolves, more and more ETFs are focusing on exciting, high-growth market segments. That includes the newly minted KraneShares Electric Vehicles & Future Mobility ETF (KARS).

The KraneShares Electric Vehicles & Future Mobility ETF, which debuted in January, is the first ETF explicitly giving investors access to the booming electric vehicle market. KARS follows the Solactive Electric Vehicles and Future Mobility Index. That benchmark provides exposure to companies producing electric vehicles as well components and parts markers.

“The Index includes issuers engaged in the electric vehicle production, autonomous driving, shared mobility, lithium and/or copper production, lithium-ion/lead acid batteries, hydrogen fuel cell manufacturing and/or electric infrastructure businesses,” according to KraneShares.

Good Timing

An often overlooked element in the success of new ETFs is the timing of the concepts being offered by those rookie funds. Data confirm that KARS fits the bill as well-timed ETF. Worldwide registrations of new electric vehicles jumped to 750,000 in 2016, according to the International Energy Agency (IEA). IEA data also indicate global electric car stock topped 2 million in 2016, doubling from 1 million in 2015.

Another element crucial to the success and viability of new ETFs is whether or not the underlying concept offers investors access to long-lasting and potentially widespread themes. Data indicate KARS does just that.

“The EV revolution is going to hit the car market even harder and faster than BNEF predicted a year ago,” said Bloomberg New Energy Finance (BNEF). “EVs are on track to accelerate to 54% of new car sales by 2040. Tumbling battery prices mean that EVs will have lower lifetime costs, and will be cheaper to buy, than internal combustion engine (ICE) cars in most countries by 2025-29.”

China, of Course

KARS is a global ETF with exposure to about 15 countries, but the U.S. and China combine for over 63% of the fund’s geographic weight, which is not surprising given the leadership of the world’s two largest economies in the electric vehicle arena.

China’s increasingly dominant footprint in the global electric vehicle market is not surprising when considering that the country is home to some of the world’s most polluted cities and that Beijing is taking steps to ameliorate that problem. Of note to investors is that Chinese policymakers are actively seeking ways to make electric vehicle investment more attractive.

“On the supply side, China’s government has made it a priority to create favorable conditions for EV stakeholders, including investors,” said McKinsey & Company. “The country’s components suppliers offered a boost, as well; for example, China’s lithium-ion battery-cell players now account for about 25 percent of global supply. As for demand, China’s high marks are evidenced not only by the number of vehicles sold but also by the variety of choices available. Approximately 25 new EV models were introduced to the Chinese market in 2016. All told, a Chinese consumer can now choose from around 75 EV models—more than in any other country we’ve measured.”

Some recent data points out of China bolster the case for KARS. Last year, 777,000 plug-in and hybrid vehicles were sold in China. The distribution of that figure is also compelling as nearly 200,000 of those sales were commercial vehicles.

Speaking of KARS being at the right place at the right time, China is extending incentives tied to the purchases of new electric vehicles through 2020, a move that will almost certainly boost demand.

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