Just how “green” electric vehicles are is debatable. But just how transformative these EVs have been to the industry and consumer preferences over the past decade is undebatable. That’s why we’ll look at two EV-related exchange-traded funds in this column: Amplify Lithium & Battery Tech ETF (BATT) and the Element EV, Solar & Battery Materials (Lithium, Nickel, Copper, Cobalt) Futures Strategy ETF ( CHRG) .
Tesla (TSLA) has been the definitive leader in both the development and production of cars powered entirely by electricity. And the rise of Tesla — and other EVs — in recent years has brought big changes to the industry. It has helped many realize that transportation doesn’t have to be relegated to internal combustion engine (ICE) vehicles. But on the other hand, the truth is that going 100% electric is extremely resource intensive. The other catch is that while using electricity doesn’t generate any carbon footprint, the generation of that electricity, not to mention the production of the vehicles themselves, produces some significant carbon emissions.
EVs and Hybrids: Old Tech?
Before Tesla, Toyota debuted the Prius, which was lauded for its hybrid approach but, despite providing some impressive range, horsepower and torque figures, the car was largely relegated to the traditional “crunchy granola tree hugger” crowd — at first, anyway. For early adopters, the past five or so years have been a wild time, with Tesla, Nio (NIO) , Lucid (LCID) , Xpeng (XPEV) , Rivian (RIVN) , among others pushing the boundaries in both engineering and aesthetics. Regulators have been busy as well, with the European Union effectively declaring the death of the internal combustion vehicle with proposed legislation banning the sale of new ICE vehicles. A number of other countries have adopted similar rules.
Automakers have responded rapidly to both consumers’ and regulators’ demands and just about every automaker now has either EV or hybrid vehicles in their lineup with plans for more.
What this means is that EV and hybrid drivetrain technology have a bright future. The other space that stands to benefit is the battery and related raw materials themselves. There are two funds that cover these bases. One has been around since 2018 and the other launched just at the end of 2022.
The Funds
The first fund is the Amplify Lithium & Battery Tech ETF. The fund tracks the EQM Lithium & Battery Technology Index. The methodology spells out the index focus in the three areas of the development and production of lithium battery technologies or battery storage products or both; the exploration, production, development, processing, and recycling of the materials and metals used in lithium-ion batteries; and the development and production of electric vehicles. Exposure to EV manufacturers has been a drag on returns the past year, but they still do represent the largest source of demand for the other two segments. It will be interesting to see what, if any, changes are made to the index as the push for hybrid drivetrains really starts to ramp up. For what it’s worth, I’d be happy to see the index pivot away from EV and automakers altogether and focus on the technology and materials side of things.
The other fund is the Element EV, Solar & Battery Materials (Lithium, Nickel, Copper, Cobalt) Futures Strategy ETF. This fund is actively managed, and, per the name, invests in a basket of raw materials futures. The website shows allocation to copper (52.4%), lithium (28.5%), nickel (15.3%), and cobalt (3.8%). Interestingly, the holdings file shows positions in two short-dated treasuries and a position simply titled “Cash & Other.” I would expect that the issuer would show the contracts in the holdings file but that doesn’t seem to be the case here. CHRG has a 95-basis point expense ratio, so shareholders with $1,000 invested over a calendar year would pay $9.50 in fees over that period.
Wrap It Up
Hybrid is not a new concept and in fact has roots with Mercedes-Benz and its 1906 Mercedes Mixte and Porsche, with the 1900 designed Porsche Semper Vivus. Tesla and other EV manufacturers have done an impressive job penetrating the traditional auto marketplace, but as more automakers embrace hybrid drivetrains the sheer number of units moved will continue to place healthy demand on both the technology of companies in funds like BATT and materials in CHRG. I don’t see an immediate catalyst driving this trade right now but keeping these funds on your watchlist and stepping into positions as we get more clarity on how hard or soft our economic landing is going to be makes sense to me.
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