Electric Vehicle (EV) ETFs Struggling: Near-Term Turnaround Likely?

Sanghamitra Saha

13 May 2024 at 8:27 am·3-min read

The electric vehicle (EV) industry is dwindling between perils and possibilities. The EV market has experienced a deceleration in its previously rapid growth. Shares of EV startups, including Rivian RIVN, Lucid LCID, and Nikola NKLA, have tumbled to near-record lows. Nikola, in particular, faces the risk of delisting from the Nasdaq, prompting executives to explore options like a reverse stock split to maintain compliance.

Global X Autonomous & Electric Vehicles ETF DRIV is off 0.8% this year and has advanced 2.7% past month (as of May 10, 2024) versus a 3.2% monthly uptick in iShares Core S&P 500 ETF IVV. Faling sales and a slump in prices have led to this “EV winter.”

A recent study showed that the average price of an EV dropped 31.8% in the past year compared to just 3.6% for internal combustion engine vehicles, per the study from iSeeCars.com, as quoted on CNBC. Also, the fast depreciation rate could discourage car buyers from preferring EVs to combustion engine vehicles.

Once-burgeoning electric vehicle startups, powered by favorable financial conditions and investor optimism, are now grappling with the tough scenarios of the market. Even industry leader Tesla TSLA is not immune to the market downturn. The company has been resorting to various moves, including workforce reductions and price cuts in order to navigate the evolving landscape.

Against this backdrop, below we highlight a few factors that could help the struggling industry to turn around ahead.

Focus on Cash Generation

Cash reserves have become a primary focus for executives of companies like Rivian Automotive, Lucid Group, and Nikola Corp. Amid slower-than-expected EV adoption and fierce competition, maintaining adequate cash flow is crucial for survival. Hence, EV startups are striving to shore up cash reserves.

Cost Reduction Measures

To weather the storm, these companies are implementing various cost-cutting measures. These include job cuts, production adjustments, renegotiating supplier contracts, and reprioritizing initiatives to optimize spending.

Chinese EV Sales Spearheading Industry Growth

Activities are ramping up in China. In March, Neighborhood Electric Vehicle (NEV) sales in China surpassed a share of 40% in overall car sales for the first time. In the first quarter of this year, nearly 1.9 million electric cars were sold in China, marking an almost 35% increase compared to sales in the first quarter of 2023. However, the electric vehicle sales growth slowed in the United States.

Increasing EV-AI Association

Foreign carmakers are flocking to join Chinese counterparts in artificial intelligence and other smart car technology. Japan’s Toyota Motor TM would team up with Chinese gaming and social media giant Tencent on AI and big data. German auto giant Volkswagen was also seen promoting its partnership with Chinese EV startup XPeng.

Renault lately mentioned engaging in "pivotal conversations" with Chinese EV manufacturer Li Auto and Xiaomi to delve into EV and smart-vehicle technologies. Xiaomi, renowned for its smartphones, recently unveiled its inaugural electric car, positioning it as a competitor to Porsche and Tesla.

Analysts' Perspectives

Wall Street analysts are cautious, describing the current state of the EV market as an "EV winter." However, some remain cautiously optimistic, foreseeing potential for recovery over the next 12-18 months.

Hybrid Vehicles: A Feasible Alternative

While the EV market faces challenges, hybrid vehicles are gaining traction as this seems to be a practical transition from gasoline to electric vehicles. The average price for used hybrids dropped by only 6.5%, making them a more stable investment compared to EVs. Hence, the medium-term fate of transportation is probably hybrid vehicle and the long-term fate is electric vehicle.

ETFs in Focus

This scenario puts focus on DRIV, KraneShares Electric Vehicles & Future Mobility Index ETF KARS, iShares Self-driving EV & Tech ETF IDRV and First Trust S-Network Future Vehicles & Technology ETF CARZ. Interested investors may keep a close track of industry news and look for better entry points in these ETFs.

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Toyota Motor Corporation (TM) : Free Stock Analysis Report

Global X Autonomous & Electric Vehicles ETF (DRIV): ETF Research Reports

Tesla, Inc. (TSLA) : Free Stock Analysis Report

First Trust S-Network Future Vehicles & Technology ETF (CARZ): ETF Research Reports

iShares Core S&P 500 ETF (IVV): ETF Research Reports

KraneShares Electric Vehicles and Future Mobility Index ETF (KARS): ETF Research Reports

iShares Self-Driving EV and Tech ETF (IDRV): ETF Research Reports

Nikola Corporation (NKLA) : Free Stock Analysis Report

Lucid Group, Inc. (LCID) : Free Stock Analysis Report

Rivian Automotive, Inc. (RIVN) : Free Stock Analysis Report

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