Electric vehicles (EVs) are frequently in the news as the most viable green alternative to gas-fueled internal combustion engines, promising the same convenient travel with a smaller carbon footprint. Investing in EV adoption by picking which car manufacturer will win is difficult. One thing is clear; every EV will use batteries, and these batteries will be made using some combination of lithium, nickel, and cobalt, connected with up to a mile of copper wire.
These vital metals are undersupplied and prices will only heat up as demand grows. That's why EV investors can’t afford to miss the latest futures ETF CHRG, which differs from other battery ETFs by providing potentially lucrative access.
Which companies are investing in EV?
Tesla has long been synonymous with "electric car," but today there are dozens of brands jostling for market share, including startups like Rivian, Lucid, and Nio, leading traditional carmakers like GM and Ford in the US; Volkswagen, Daimler, Renault and BMW in Europe; Nissan, Toyota, Hyundai, and Honda in Asia. If you have your eyes on a battery ETF then it’s worth first getting familiar with the EV market.
Here are the main EV companies to keep your eye on.
Tesla has the biggest share of the market and consumer attention, producing over 365,000 vehicles in Q3 2022. It presides over extensive EV infrastructure, including the largest fast charging network in the world and six factories, and stands to benefit from the recent Inflation Reduction Act (IRA), under which all Tesla models are eligible for tax credits. "There's no question Tesla's winning the race right now, by a wide margin," said Michelle Krebs, executive analyst at Cox Automotive.
However, that could change. John Murphy, managing director and lead auto analyst at Bank of America Merrill Lynch, predicts its market share will decline from 70% in 2021 to the low teens by 2025, due to competition from other manufacturers. It's also grappling with challenges including quality issues and labor shortages, and falling behind with new models. Tesla's Q3 2022 earnings call left analysts uneasy, and shares dropped 47% in price over the course of 2022. That said, its name recognition, industry expertise, and aforementioned infrastructure mean it's still well placed to stay in the top centile of the market.
Battery Composition: The types of batteries that EV makers like Tesla use are always changing, often from model to model. Tesla itself uses a range of batteries, including high-lithium batteries, high nickel batteries with cobalt and manganese, and silicon anode batteries that use lithium together with silicon.
With years of green policies and subsidies for alternative energies, the EV market in Europe is far ahead of the US, giving European carmakers a leg up. As Europe's biggest EV producer, Volkswagen is one of the top traditional carmakers in the electric vehicles market. It currently captures approximately 25% of Europe's EV market and lies just behind BYD and Tesla in EV sales.
Volkswagen is pouring investment into its EV division, expecting to spend around €52 billion on electrification through 2026. It has grand plans, aiming to become the world's biggest EV seller by 2025 and raise the share of sales from electric vehicles, from 5.1% in 2021 to 50% by 2030.
Battery Composition: Volkswagen and Ford are noteworthy for using some of the biggest range of battery types, from lithium, nickel, and cobalt batteries to solid state batteries that require less cobalt, high nickel batteries, and high lithium batteries.
The US lags behind in electrification, but recent policies encouraging clean energy, including the Inflation Reduction Act, may move it ahead in the next few years as US based automotive leaders funnel money into EV development. Ford and GM are battling it out, and could overtake Tesla as the market expands and there's more demand for affordable models.
Ford is ahead of GM at the moment, thanks to hit models like the E-Transit commercial van, Mustang Mach-E SUV, and the F-150 Lightning pickup, which sold out quickly. It has strong brand loyalty, expects 40-60% of its vehicles to be electric by 2030, and is currently beating GM on sales and shopping data.
Battery Composition: Like Volkswagen, Ford needs lithium, nickel, cobalt, phosphate, and more for its long list of battery types.
GM's potential to leapfrog Ford lies in its technological innovation. GM developed the Ultium flexible battery architecture that allows the company to produce EV batteries on a massive scale and at lower cost, which will in turn bring down the price of its EVs. Price is the battlefield that GM has chosen, with CEO Mary Barra saying "That’s the long game we are playing, and I’m here to win." In line with this philosophy, GM uses only two kinds of batteries: solid state batteries using lithium, nickel, and phosphate, or high nickel batteries that also require cobalt and manganese.
GM has begun building four battery manufacturing plants together with LG Electric, the first of which started operations in 2022, and aims to invest over $35 billion in EVs by 2025 and produce 1 million EVs each year by 2026. In contrast, Ford's planned battery plants won't begin production for at least 2 years, and still has to retool its assembly plants for the new batteries.
GM has a long list of EV models for release over the next year or so, including the GMC Hummer EV Pickup, the Cadillac Lyriq SUV, and Blazer and Equinox utility vehicles, which could bring it up to or ahead of Ford in EV sales.
Other EV companies for the investor watchlist include Rivian, an American startup that sold Amazon its electric delivery vans. 1,000 vans with lithium, iron ore, and phosphate batteries are already on the road, and Amazon plans to add another 10,000. Rivian sold 6,584 vehicles in Q3 2022, with batteries that use lithium, mostly nickel, or nickel, cobalt, and manganese, and recently announced plans to add a second manufacturing plant which will come online by 2024.
EV Batteries will be a constant need
EV use goes beyond sedans with relatively small batteries to larger vehicles like SUVs and pickups, as well as electric buses, vans, and trucks, which require larger batteries and more raw materials. But the core elements necessary for development are consistent across manufacturers: lithium, nickel, cobalt, and copper.
Supplies of these vital components are already low, pushing prices up to the extent that lithium is near historic highs. The problem is compounded by the fact that supply is concentrated in certain areas of the world, many of which are unstable and/or under totalitarian regimes which are or may soon be under sanctions. The uncertainty around supply only drives prices higher. As more large EVs take to the roads, even greater pressure will be put on the supply chain, offering an attractive opportunity for investors.
Even at the current page of adoption, global supply cannot satisfy forecasted demand
Selected battery raw materials supply / demand forecasts
An EV component futures ETF beckons
The car industry already requires massive amounts of these raw materials, and this need will only continue to grow. Automakers rely on lithium, nickel, cobalt and copper, plus significant amounts of other metals like aluminum, manganese, and iron are also crucial. This makes a futures ETF like CHRG, that actively tracks the prices of essential commodities for EV batteries, an option for investors that want to benefit from the market’s explosive growth without guessing which EV maker will triumph.
No matter which carmaker takes the crown from Tesla or captures the European market, it will still need the same commodities for its EV batteries. A regular battery ETF targets companies; CHRG is a futures ETF for lithium, cobalt, nickel, and copper. It is rebalanced monthly by a team with 70 combined years of experience in metals and mining. CHRG offers a deeper perspective for investors looking beyond the car manufacturers for exposure to the burgeoning EV market.