What ETF Investors Need to Know About the Electric Vehicle (EV) Industry Going into 2024

On EV industry growth prospects

"We believe in the long-term secular growth opportunity of the energy transition story including electrification of transport," Sassine says.

This perspective is supported by global trends towards sustainable energy and reducing carbon emissions. The transition to EVs is not just a technological shift but also part of a broader move towards cleaner energy sources.

"We must replace around 1.3 billion ICE vehicles with EVs by 2050 and we are currently at approximately 38 million. There is still a long way to go, and this transition is backed by innovation, government policy and changing attitudes among car buyers wanting to be more environmentally friendly," Sassine says.

The vast gap between current EV numbers and the 2050 target highlights the immense potential for growth in the EV market. Government policies worldwide are increasingly supportive of EVs, offering incentives and subsidies for both manufacturers and buyers, while consumer attitudes are shifting in favor of environmentally friendly options.

"The EV industry has also made big progress in terms of cost and range especially as battery prices declined more than 80% over the past 10 years," Sassine says.

The decline in battery prices is a critical factor driving the affordability and practicality of EVs. Cheaper batteries mean lower overall vehicle costs and longer ranges, making EVs more accessible and appealing to a broader market.

"However, we believe real mass adoption will occur as we reach ICE parity over the next couple of years. Meaning when you go to a dealership, the EV version of the same car will be more attractive, faster and cheaper than its ICE counterpart," Sassine says.

Reaching cost parity with internal combustion engine (ICE) vehicles may therefore be the inflection moment for the EV industry. As EVs become not just environmentally but also economically preferable, their adoption is expected to accelerate, disrupting the traditional automotive market.

On what makes KARS unique

"We built this ETF in collaboration with Bloomberg Indices and Bloomberg New Energy Finance (BNEF) one of the largest sustainability research companies globally," Sassine says.

This collaboration combines real-world industry expertise from BNEF with KraneShares' portfolio management capabilities, offering an informed and strategic approach to investing in the EV space.

"KARS targets the industries that are driving the EV transition including EVs, the EV components companies, the battery makers, raw materials, charging, connectivity etc," Sassine says.

KARS stands out from some other EV ETFs that hold substantial portions in non-pure play EV companies like big tech and semiconductors, which may align them more closely with tech growth funds rather than focused EV investments.

"KARS also is the only ETF that actually has teams of analysts whether at KraneShares or BNEF evaluating the companies included and making sure the derived revenues are actually related to EVs and not tech, gaming or other industries," Sassine says.

This rigorous evaluation ensures that KARS is genuinely concentrated on the EV industry, avoiding dilution of focus with unrelated sectors.

"As a result, none of the big tech companies are included like Apple, Nvidia, Google, etc. as their revenues from EVs are minimal. Also, KARS' country allocation is more related to the globe’s largest EV markets: China, E.U. and the US. Other funds are mostly dominated by the U.S.," Sassine says.

The geographical diversification in KARS is crucial, considering major EV manufacturers are predominantly in China, along with strong legacy ICE automotive manufacturers in the E.U. pivoting their product lineup to EVs.

"Finally, KARS overlap with the S&P 500 and MSCI ACWI Index is minimal, which is important for diversification and risk management. We recommend KARS ETF as a complement to any global equity portfolio," Sassine says.

The minimal overlap with broad market indices like S&P 500 and MSCI ACWI makes KARS an effective tool for diversification, fitting well into a 'core and explore' investment approach where core holdings are in broad market funds and exploratory allocations are made to specialized ETFs like KARS.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.