The first modern version of the internal combustion engine was invented in 1876, forever changing commerce and the way people move around. More than 140 years later, another transportation revolution is afoot: electric vehicles.
Relative to traditional automobiles, there currently are not many electric vehicles on the road today, estimates for electric vehicle adoption over the coming years are exponential, indicating potentially significant investment opportunities could accompany electric demand.
“Our latest forecast shows sales of electric vehicles (EVs) increasing from a record 1.1 million worldwide in 2017, to 11 million in 2025 and then surging to 30 million in 2030 as they become cheaper to make than internal combustion engine (ICE) cars,” according to Bloomberg NEF. “China will lead this transition, with sales there accounting for almost 50% of the global EV market in 2025.”1
The International Energy Agency (IEA) offers up even more jaw-dropping forecasts. According to IEA, the number of electric cars on the road could reach 125 million by 2030, but that number could jump to 220 million driven by “rising ambitions to meet climate goals and other sustainability targets.”2
Source: IEA, as of June 30, 2018.
The U.S. and China are the world’s two largest automotive markets and are expected to major drivers in the electric vehicle boom. Each market has different dynamics that investors should consider. For example, in the U.S., where electric vehicles currently represent just 1% of all vehicles on the road, market factors include some states pushing for increased electric vehicle consumption. California being a prime example.
Another element of the electric vehicle investment thesis, one that is particularly relevant to the domestic market, is energy storage. Energy storage is not limited to electric vehicles. It has wide-ranging applications, including aiding in stabilization of the traditional power grid and optimization of renewable energy sources, such as solar and wind.
Speaking of renewable energy, increased adoption of those sources is pinching traditional utilities companies. However, U.S. utilities see opportunity with energy storage and are investing in related infrastructure.
Earlier this year, 36 domestic utilities companies wrote a letter to Congress seeking the removal of electric vehicle tax credits, which are slated to expire when each automobile manufacturer sells 200,000 of those cars.3
China’s electric vehicle motivations are clear. The country’s booming economy has also made it one of the world’s worst polluters and Beijing is attempting to address that problem. In fact, China’s electric vehicle market is growing twice as fast as the comparable market in the U.S.
Consider the following. At this year’s Beijing Auto Show, 1,022 vehicles were on display, 1744 of which were electric vehicles. Estimates indicate that 1.8 million new electric vehicles will be sold around the world this year with China accounting for 1 million of that figure, or more than double the 400,000 forecast for the U.S. market.4
Tesla Inc. (TSLA), the marquee name among domestic electric vehicle manufacturers, said in July it wants to build a factory in China where production could eventually reach 500,000 units per year, which is on par with the company’s California facility
A New Vehicle
The ALPS Clean Energy ETF (ACES) offers broad-based exposure to companies focused on renewables and other clean technologies spread across seven disruptive clean energy themes, including electric vehicles/energy storage. ACES, which debuted in late June, features exposure to shares of Tesla
Important Disclosure & Definitions
Investors should consider investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information. For a prospectus for the above listed fund, please click here. Please read the prospectus carefully before investing. For additional information on the above listed fund, please click the respective link.
Standardized performance for the ALPS Clean Energy ETF (ACES) can be found here. Current holdings for ACES can be found here.
Shares are not individually redeemable and the owners of shares may purchase or redeem shares from a fund in creation units (blocks of 50,000 shares) only.
ALPS Advisors, Inc. (AAI) has engaged IRIS Werks, LLC (IRIS) to produce analysis and commentary on ALPS-advised ETFs. IRIS currently has a compensated business relationship with AAI. AAI is not affiliated with IRIS.
The content and opinions expressed in this article are that of the author and not the views and opinions of ALPS Advisors, Inc. In addition, ALPS Advisors, Inc. assumes no responsibility to ensure the accuracy of the content written by the author.
The author is not an investment professional and this article should not be considered investment advice. While the information and statistical data contained herein are based on sources believed to be reliable, the author takes no responsibility to ensure the accuracy of the content. Additionally, this article should not be relied on or be the basis for an investment decision. Information that is historical is not indicative of future results, and subject to change
There are risks involved with investing in ETFs including the loss of money. Additional information regarding the risks of this investment is available in the prospectus.
An investment in the Fund is subject to investment risk including the possible loss of the entire principal amount that you invest.
Clean Energy Sector Risk. Obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants and general economic conditions can significantly affect companies in the clean energy sector. In addition, intense competition and legislation resulting in more strict government regulations and enforcement policies and specific expenditures for cleanup efforts can significantly affect this sector. Risks associated with hazardous materials, fluctuations in energy prices and supply and demand of alternative energy fuels, energy conservation, the success of exploration projects and tax and other government regulations can significantly affect companies in the clean energy sector. Also, supply and demand for specific products or services, the supply and demand for oil and gas, the price of oil and gas, production spending, government regulation, world events and economic conditions may affect this sector. Currently, certain valuation methods used to value companies involved in the clean energy sector, particularly those companies that have not yet traded publicly, have not been in widespread use for a significant period of time. As a result, the use of these valuation methods may serve to increase further the volatility of certain clean energy company share prices.
Concentration Risk. The fund seeks to track the underlying index, which itself may have concentration in certain regions, economies, countries, markets, industries or sectors. Underperformance or increased risk in such concentrated areas may result in underperformance or increased risk in the fund.
Canadian Investment Risk. The fund may be subject to risks relating to its investment in Canadian securities. The Canadian economy may be significantly affected by the U.S. economy, given that the United States is Canada’s largest trading partner and foreign investor. Any negative changes in commodity markets could have a great impact on the Canadian economy. Because the fund will invest in securities denominated in foreign currencies and the income received by the fund will generally be in foreign currency, changes in currency exchange rates may negatively impact the fund’s return.
Micro-Capitalization Company Risk. Micro-cap stocks involve substantially greater risks of loss and price fluctuations because their earnings and revenues tend to be less predictable (and some companies may be experiencing significant losses), and their share prices tend to be more volatile. The shares of micro-cap companies tend to trade less frequently than those of larger, more established companies, which can adversely affect the pricing of these securities and the future ability to sell these securities.
Small- and Mid-Capitalization Company Risk. Smaller and mid-size companies often have narrower markets, less liquidity, more limited managerial and financial resources and a less diversified product offering than larger, more established companies. As a result, their performance can be more volatile, which may increase the volatility of the Fund’s portfolio.
Large Capitalization Company Risk. The large capitalization companies in which the Fund invests may underperform other segments of the equity market or the equity market as a whole.
NACEX Index – The CIBC Atlas Clean Energy Index is an adjusted market cap weighted index designed to provide exposure to a diverse set of U.S. or Canadian based companies involved in the clean energy sector including renewables and clean technology.
One cannot invest directly in an index.
PHEV – Plug-in Hybrid Electric Vehicles. PHEVs use an internal combustion engine supported by electric motors and a battery, and the battery can be charged when the vehicle isn’t in use
BEV – Battery Electric Vehicles. BEVs use electric motors powered by a battery that needs to be plugged into a charger.
The fund is new and has limited operating history.
ALPS Portfolio Solutions Distributor, Inc. is the distributor for the ALPS Clean Energy ETF.
1 Source: Bloomberg NEF https://about.bnef.com/electric-vehicle-outlook/
2 Source: International Energy Agency http://www.iea.org/gevo2018/
3 Source: NPR March 29, 2018 https://www.npr.org/2018/03/29/598032288/u-s-utilities-look-to-electric-cars-as-their-savior-amid-decline-in-demand
4 Source: South China Morning Post April 27, 2018 https://www.scmp.com/business/companies/article/2143646/chinas-ev-market-growing-twice-fast-us-heres-why
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