ETFs
Electric Vehicle (EV) ETFs Are in Trouble: Short-Term Recovery Likely?
The electric vehicle (EV) industry is declining between perils and possibilities. The electric vehicle market has seen a slowdown in its previously rapid growth. Shares of electric vehicle startups, including Rivian RIVN, Lucid LCID and Nikola NKLA, have fallen to near-record lows. Nikola, in particular, faces the risk of being delisted from Nasdaq, prompting executives to explore options such as reverse stock splits to maintain compliance.
Global X Autonomous and Electric Vehicle ETF DRIV is down 0.8% this year and rose 2.7% last month (as of May 10, 2024), compared to a monthly increase of 3.2% in 2024. iShares Core S&P 500 ETF IVV. Declining sales and falling prices have led to this “EV winter.”
A recent study showed that the average price of an electric vehicle has fallen 31.8% over the past year, compared to just 3.6% for vehicles with internal combustion engines, according to the study. iSeeCars.com, quoted on CNBC. Additionally, the rapid depreciation rate could discourage car buyers from choosing electric vehicles over combustion engine vehicles.
Once-booming electric vehicle startups, fueled by favorable financial conditions and investor optimism, are now grappling with challenging market scenarios. Even industry leader Tesla TSLA is not immune to the market downturn. The company has resorted to various measures, including workforce reductions and price cuts, in order to adapt to a changing landscape.
In this context, below we highlight a few factors that could help this struggling sector recover.
Focus on cash generation
Cash reserves have become a priority for executives at 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. Therefore, electric vehicle startups are working to shore up their cash reserves.
Cost reduction measures
To weather the storm, these companies are implementing various cost-cutting measures. These include job cuts, production adjustments, renegotiation of supplier contracts and redefinition of priorities to optimize spending.
Electric vehicle sales in China, spearheading sector growth
Activities are intensifying in China. In March, sales of neighborhood electric vehicles (NEVs) in China exceeded the 40% share of overall car sales for the first time. In the first quarter of this year, nearly 1.9 million electric cars were sold in China, an increase of nearly 35% compared to sales in the first quarter of 2023. However, the growth of electric vehicle sales has slowed in the USA.
Growing EV-IA Association
Foreign automakers are flocking to join their Chinese counterparts in artificial intelligence and other smart car technologies. from Japan Toyota engine 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 startup XPeng.
The story continues
Renault recently mentioned engaging in “crucial conversations” with Chinese electric vehicle maker Li Auto and Xiaomi to further explore electric vehicle and smart vehicle technologies. Xiaomi, known for its smartphones, recently unveiled its first electric car, positioning it as a competitor to Porsche and Tesla.
Analyst Views
Wall Street analysts are cautious, calling the current state of the electric vehicle market an “EV winter.” However, some remain cautiously optimistic, predicting the potential for recovery over the next 12 to 18 months.
Hybrid vehicles: a feasible alternative
As the electric vehicle market faces challenges, hybrid vehicles are gaining ground as it appears to be a practical transition from gasoline to electric vehicles. The average price of used hybrids has only fallen 6.5%, making them a more stable investment than electric vehicles. Therefore, the medium-term destiny of transport will probably be that of hybrid vehicles and that of electric vehicles in the long term.
Focus on ETFs
This scenario focuses on DRIV, KraneShares Electric Vehicles and Future Mobility ETF KARS, iShares EV and Autonomous Technology ETF IDRV and First Trust S-Network Future Vehicles & Technology ETF CARZ. Interested investors can closely follow industry news and look for better entry points into these ETFs.
Want the latest recommendations from Zacks Investment Research? Today you can download the 7 best stocks for the next 30 days. Click to get this free report
Toyota Motor Corporation (TM): Free Stock Analysis Report
Global X Autonomous and Electric Vehicle 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 ETF (KARS): ETF Research Reports
iShares Electric Vehicle and Autonomous Technology 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