How to invest in EV stocks 101: Guide to the growing EV market

Table of Contents

  1. What are EV stocks? How to invest in them?
  2. EV market outlook 2023
  3. Why retail investors are interested in EV stocks
  4. Benefits to consider when buying EV stocks
  5. Limitations to consider when buying EV stocks
  6. EV stocks: Bull and bear cases
  7. Where to research EV stocks
  8. How to buy/invest in EV stocks

What are EV stocks? How to invest in them?

Electric cars are revolutionizing the automotive industry, and the growth potential of this industry is reflected in the increased demand for Electric Vehicle (EV) stocks. According to a report by Grand View Research, the global EV market is expected to reach $1.07 trillion by 2027, with a compound annual growth rate (CAGR) of 41.5% from 2020 to 2027. With such optimistic growth prospects, many investors are eager to explore the EV market and which types of companies make up its ecosystem. There are many components to the EV supply chain, beyond the vehicles, and in this article we’ll explore the basics of investing in EV stocks. We’ll dive into the different types of companies involved in the EV industry, from lithium battery manufacturers to charging stations, and how investors can apply knowledge of the EV supply chain to their investment strategies.

Key takeaways

  1. Retail investors seem to like EV stocks for potential growth and returns, including disruptors like Tesla and NIO, and legacy automakers investing in EV tech.

  2. The EV value chain includes more than just automakers, also covering battery minerals, technology, charging stations, and more.

  3. EV stocks can be volatile in the short-term despite high interest from retail investors.

  4. Retail investors can buy EV stocks and ETFs through platforms like Public.

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EV market outlook 2023

The electric vehicle (EV) industry has seen significant growth in recent years, driven by factors such as advancements in battery technology, government incentives, and consumer demand for more sustainable transportation options. As a result, many analysts predict that the market for EVs and associated technologies, like charging infrastructure and EV energy sources, is well-positioned for significant growth in the coming years

When looking at growing industries, analysts and researchers posit predictions as to adoption and revenue growth into the future. Regarding EVs, a recent report by Bloomberg New Energy Finance predicted that EVs could account for 10% of global passenger vehicle sales by 2025, rising to 28% in 2030 and 58% in 2040. So while EV sales today make a minority share of all sales, within 20 years they are expected to make up over half of all auto sales, according to these estimates.

In addition, according to the International Energy Agency’s (IEA) Global EV Outlook 2021, the number of EVs on the road could reach 145 million by 2030. A report by BloombergNEF states that global electric vehicle sales are expected to grow from 3 million units in 2020 to 14 million units in 2025 and 54 million units by 2040. According to Beyond Market Insights, the size of the Global Electric Vehicle Market was worth around USD 178.5 billion in 2021 and is predicted to grow to around USD 1108.8 billion by 2030 with a compound annual growth rate (CAGR) of roughly 22.5% between 2022 and 2030.

Beyond sustainability and technology, there are notable regulatory decisions that have shaped the EV industry, for example, the Inflation Reduction Act of 2022. One of the key provisions of the Act is the extension of tax credits for EV purchases, which aims to make EVs more affordable for consumers. Additionally, the Act includes funding for the development of charging infrastructure, which is essential for the growth of the EV market.

Why retail investors are interested in EV stocks

There are a few reasons why retail investors are interested in retail stocks:

  1. EV industry momentum: EV stocks have gained significant popularity among retail investors in recent years. Data shows an increased consumer demand for EVs, and recent legislation further supports an increased interest in opting for EVs.

  2. EV growth prospects: Some retail investors have been drawn to EV stocks due to their potential for high growth and returns.

  3. Consumer awareness: In addition retail investors might also have an increased interest in these stocks if they are a consumer of EV products that are publicly traded, like Tesla (TSLA) and Rivian (RIVN). These companies, in addition to others such as NIO and Fisker, have been among the most popular EV stocks among retail investors.

  4. Ease of investing: The accessibility of commission-free trading platforms and social media platforms, such as Reddit and Twitter, has also contributed to the popularity of EV stocks among retail investors, as it allows for easy sharing of information and opinions.

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Benefits to consider when buying EV stocks

There are several potential advantages to investing in electric vehicle (EV) stocks:

  1. Growing industry: The EV industry is expected to continue growing rapidly in the coming years, with many governments around the world setting ambitious targets for the adoption of electric vehicles. This growth could translate to higher sales and revenues for companies involved in the industry, which could in turn drive stock prices higher.

  2. Environmental benefits: Electric vehicles are often seen as a more environmentally friendly alternative to traditional gasoline-powered vehicles, as they produce fewer emissions and pollutants. Investors who are interested in companies that prioritize sustainability may be attracted to EV stocks for this reason

  3. Technological innovation: The development of electric vehicles requires significant investment in new technology and infrastructure, including battery technology, charging stations, and software for managing and optimizing electric vehicle fleets. Companies that are able to innovate in these areas may have a competitive advantage in the EV market, which could drive higher stock prices.

  4. Government incentives: Many governments around the world offer incentives for the purchase and adoption of electric vehicles, which can help boost demand for EVs and drive sales for companies involved in the industry. In addition, government policies that prioritize the transition to clean energy may create a more favorable regulatory environment for companies involved in the EV industry.

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Limitations to consider when buying EV stocks

Amid this hype, as is the case with any growth stock, EV stocks can be risky. Below are some potential downsides to be mindful of:

  1. Market competition: The EV industry is becoming increasingly crowded, with many companies competing for market share. This competition can make it difficult for individual companies to stand out, which could limit their growth potential and impact stock prices negatively.

  2. High valuation: Many EV stocks are currently trading at high valuations, which may not be sustainable if the industry does not continue to grow at the expected rate. This could
    result in a market correction, leading to potential losses for investors.

  3. Regulatory risks: The EV industry is heavily influenced by government policies and regulations, which can be subject to change. Changes in regulations or incentives could impact the demand for EVs and the financial performance of EV companies, which could negatively affect stock prices.

  4. Supply chain risks: The production of electric vehicles relies on a complex global supply chain, including the sourcing of rare minerals and metals for batteries. Any disruption to the supply chain could impact the production and profitability of EV companies, which could impact their stock prices.

EV stocks: Bull and bear cases

Overall, EV industry bulls are optimistic about the future of electric vehicles, citing trends such as the need for clean energy, advancements in battery technology and charging infrastructure, affordability, government support, potential for autonomous driving technology, and heavy investment in the industry. They see EVs as a rapidly growing market with significant potential for growth and returns

In contrast, EV industry bears have raised concerns about the high costs of EVs relative to gas-powered vehicles, risks associated with EV battery production and supply chain, limited availability of charging infrastructure, lack of standardization in charging technology, concerns about battery lifespan and disposal, and challenges faced by established automakers in transitioning to EV production. They are also cautious about the long-term sustainability of the EV market, which could inhibit future growth potential.

Where to research EV stocks

Given the popularity of EVs among investors, there are various sources from which diligent investors can gather data to make informed decisions. Trusted financial news outlets often cover this industry and investors can track company news, announcements, and earnings calls through publicly available investor relations websites. Investing platforms like Public also offer in-context education, such as EV supply chain courses, audio shows with industry experts, and advanced charts on EV stock pages. By regularly monitoring these sources, investors can make educated and timely portfolio decisions and determine the best EV stocks based on their goals.

How to buy/invest in EV stocks

Getting familiar with the EV value chain is a good starting point for investors who want to invest in EV stocks but are unsure which stocks best align with their investment goals. By becoming familiar with the EV value chain, investors can more easily identify the companies that are well-positioned for growth and those that are riskier. The EV value chain also includes companies beyond automakers, and understanding the components of the entire system can unlock new ideas for investment opportunities (for example, lithium battery technology). Becoming more familiar with the industry can help them navigate the potential risks and challenges, such as supply chain disruptions or regulatory changes.

The EV value chain can be broken down into several components, including raw material production, battery manufacturing, vehicle production, and charging infrastructure. Each component plays a vital role in the success of the overall EV industry, since the cars you see on the road all rely on the processes and parts that lead to the end product.

As an investor, it is vital to conduct your research to understand the various components of the value chain and how they fit into your investment strategy. For example, understanding the raw material supply chain can help investors evaluate the risks associated with supply chain disruptions, while understanding battery technology can help investors assess a specific EV manufacturer’s long-term prospects. Also, understanding the role of charging infrastructure can help investors evaluate infrastructure investment opportunities. By learning the various components of the EV value chain, investors can understand the larger forces at work within the sector.

There are several publicly-traded companies that specialize in different aspects of the EV value chain. For example, EV automakers like Tesla, NIO, XPENG, and BYD, as well as legacy manufacturers like Ford and GM that are increasingly investing in EVs. On the other hand, there are lithium battery companies such as Panasonic, LG Chem, and CATL, which play a crucial role in powering EVs and are also growing as demand for EVs increases. There are also companies like ChargePoint, EVBox, Fisker, and Blink Charging, which focus on developing and providing EV charging infrastructure to support the growth of the EV industry. It’s important for investors to research these companies thoroughly and understand their position in the EV value chain before making investment decisions.

Finally, investors can gain exposure to the EV industry through exchange-traded funds (ETFs), which provide diversified portfolios of EV-related companies. Some popular EV-focused ETFs include the Global X Autonomous & Electric Vehicles ETF (DRIV), the KraneShares Electric Vehicles & Future Mobility ETF (KARS), and the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN). These ETFs typically hold a mix of EV automakers, battery manufacturers, and charging infrastructure companies.

Investing in the rapidly expanding EV industry can be an enticing opportunity for investors. Nonetheless, it is crucial to conduct thorough research and grasp the intricacies of the industry before making any substantial investment decisions. While investing in individual EV stocks or ETFs can offer exposure to this market, diversification across various sectors and industries is essential for long-term investors. By taking the below steps, investors can position themselves to capitalize on the growth potential of this exciting industry.

  1. Open a brokerage account through your preferred investment platform (e.g. Public).

  2. Plan your investment strategy.

  3. Assess your personal investment strategy and decide if it makes sense to invest in ETFs or individual EV stocks.

  4. Buy shares of these stocks.

  5. Set up a purchasing plan.

  6. Plan your exit strategy.

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What are EV stocks?

EV stocks refer to stocks of companies that design, manufacture, and sell electric vehicles (EVs) or provide services and technology related to EVs.

What are some components of the EV value chain?

The components of the electric vehicle (EV) value chain include battery production, electric motor manufacturing, charging infrastructure development, and EV assembly. Additionally, other components such as software and sensors, recycling and disposal of used batteries, and research and development are also crucial parts of the EV value chain.

Are EV stocks a good investment?

EV stocks, for certain investors, can be considered a good investment due to the potential for growth, innovation and environmental benefits associated with the industry. However, as with any stock, there are uncertainties and risks to consider when investing including market volatility, competition, and shifting government policies amongst others. Whether or not EV stocks are a good investment depends on individual circumstances, investment goals, and risk tolerance.