What Lies Ahead of Electric Vehicle (EV) ETFs? – April 16, 2024
The electric vehicle (EV) industry is dwindling between perils and possibilities. The EV market has experienced a deceleration in its previously rapid growth. 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. The fast depreciation rate could discourage car buyers from preferring EVs to combustion engine vehicles.
Impact of Rapid Depreciation on EV Market
Karl Brauer, an executive analyst at iSeeCars, indicated that the considerable depreciation in EVs’ value is discouraging new car buyers, as the initial depreciation is the costliest aspect of owning a new vehicle. Moreover, David Kuo, stock analyst and co-founder at the Smart Investor, compares EVs to consumer electronics, which also depreciate rapidly, as quoted on the above-mentioned source.
Both industry representatives and market insiders, including those from major automakers like VW and Toyota, have expressed concerns over the depreciation rates impacting the attractiveness of their EV offerings.
Technological Obsolescence
Kuo further explains that the technology and software in EVs may become out-of-date quickly. This would weigh on their appeal in the used car market. This expected obsolescence could result in a realization among buyers that they may be paying too much for new EVs.
Price War in EV Space
EV king Tesla‘s (TSLA – Free Report) remains the undisputed winner of EV sales in the United States, taking 55% of the EV market in 2023. That’s down from 65% in 2022, per Cox. Tesla seeks to regain its lost market share by rolling out incentives globally.
Tesla’s aggressive price cuts have significantly affected market dynamics, pushing down prices across the board. Elon Musk, CEO of Tesla, defends these reductions as necessary to make EVs more affordable and accessible. But the move pressurizes margins. As first reported by EV blog Electrek, CEO Elon Musk emailed staff confirming a “more than 10%” headcount reduction.
Any Ray of Hope?
Despite afore-mentioned challenges, the global EV market continues to grow. Although, sales momentum is slowing, the medium-term fate of transportation is probably hybrid vehicle and for long-term, electric vehicle. Several new players are coming up.
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.
Battery Materials and Charging Infrastructure
The prices of battery materials like lithium, cobalt, and nickel, which recorded drops in 2023, are expected to stabilize, which in turn would improve vehicle margins or make EVs more affordable for consumers. The global count of installed EV chargers, which has been rapidly increasing. Activities are ramping up in China.
ETFs in Focus
This scenario puts focus on Global X Autonomous & Electric Vehicles ETF (DRIV – Free Report) , KraneShares Electric Vehicles & Future Mobility Index ETF (KARS – Free Report) , iShares Self-driving EV & Tech ETF (IDRV – Free Report) and First Trust S-Network Future Vehicles & Technology ETF (CARZ – Free Report) .
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