There’s no doubt that electric vehicles (EVs) are the future. But the question is, who will win the EV race? Will it be Tesla, Nio, Rivian, Xpeng, BYD, Hyundai or perhaps Ford?
A few weeks ago, the Internet was abuzz after Elon Musk said that he expects Tesla’s main rival to be a Chinese player. Could that be BYD, Nio or Geely? While only time will tell which Chinese player will emerge champion, one thing is certain: we cannot underestimate China when it comes to the growing EV industry.
After all, China’s plans were already underway more than a decade ago (while other countries were still debating over whether climate change was indeed a real threat), and the government began subsidizing EV sales as early as 2010 when the industry was still in its infancy. And in 2015, China issued its plan to build charging infrastructure and pushed its main state utility companies to build out a network of chargers across the nations.
In contrast, other countries have only just begun to jump on the bandwagon in recent years.
Sponsored Message China EV makers are leading the global EV race and are likely to continue their dominance for many more years to come. Get exposure to this fast-growing sector when you invest in the NikkoAM-StraitsTrading MSCI China Electric Vehicles and Future Mobility ETF.
Are EVs really the future? Yes.
It will take time, but we will likely soon see a future where only clean-energy vehicles dominate. Some trends are clearer than others, and investors who are able to spot and invest in those early before they grow to dominate the future can potentially make a sizeable profit.
The global EV industry is presently worth USD 250 billion, but is projected to triple to USD 800 billion by 2027. A year ago, industry experts predicted that 10 million new electric vehicles (EVs) would be sold in 2022 worldwide, almost 10 times from 2017. As it turned out, their estimates were spot on. Today, with climate change, government policies, consumer trends and the rising prices of fuel coalescing, there’s little doubt that this trend will continue in 2023 and beyond.
Around the world, many policymakers have already laid out concrete plans to decarbonize and shift demand towards EVs. In Europe, an EU-wide ban on sales of petrol and diesel cars will be implemented by 2035, while the UK has recently brought forward their own phase-out date to 2030. China is aiming for 40% of vehicles sold to be electric by 2030, while Singapore aims higher at 100% cleaner energy vehicles by 2040. As for consumers, how far an EV vehicle can go and easy access to charging points are crucial considerations before they choose to purchase an EV. In this regard, the Singapore government has committed to building 60,000 charging points by 2030, whereas China already has 1.8 million vs. the 53,000 in the US.
Which EV stock will be the winner?
As an investor, if you are able to spot what you believe to be “sure-win” stocks that are riding on a strong tailwind and you invest in them early, potentially you stand a pretty good chance of profiting handsomely. For instance, those who identified Amazon for e-commerce, Google (Alphabet) for online search, Apple for consumer smartphones or even TSM for 4G and smart devices…have made a killing in the stock markets.
However, the reality is that’s easier said than done. And in the business world, a lot of companies will fail in the race to global dominion (who still remembers Yahoo or GoTo in the online search engine race?). There is no guarantee that today’s leaders will still be tomorrow’s winner. Although Tesla is, and has been, number 1 in terms of market share for several years, other players like Ford are now starting to catch up.
What’s more, even if you had invested in market-leader Tesla, the ride would have been a shaky one:
- Tesla’s share price went up by 12 times (1200%) in 20 months during the pandemic.
- The stock then shed 70% in just 14 months, after its peak.
- Investors who waited to invest only after Tesla became profitable (Jan 2021), are still in the red today.
- Many investors who entered after Tesla rose to mainstream popularity on Youtube are still in the red today.
- Those who went in (including funds) after Tesla entered the S&P 500 (Dec 2020), are mostly still in the red today.
In fact, only a small handful of investors managed to profit from Tesla e.g. those who dared to invest in Tesla during last month’s problems (CEO being distracted by Twitter and assuaged with calls for his resignation, protests against price cuts, Elon Musk being sued for fraud, etc), and those who invested before Tesla’s stock became mainstream.
Investing via EV ETFs
So for those who prefer to avoid the volatility that comes with individual EV stocks, another way is to invest via EV exchange-traded funds (ETFs). There are various options for you to choose from, and you can also opt for ETFs that allow you to diversify across the different players in this value chain – manufacturers, battery technology companies, builders of charging infrastructure, etc that support the entire ecosystem.
But while a lot of the world’s attention is on US manufacturer Tesla, the truth is that America is lagging far behind China when it comes to EVs in terms of sales, charging infrastructure, cost and policy support. For instance, last year, the US passed the crucial tipping point of EVs accounting for 5% of new car sales, but China already passed that level in 2018.
Even Elon Musk has acknowledged that Tesla’s biggest rival will likely be a Chinese player. That’s hardly surprising when you consider how China is leading global EV sales – 1 out of every 2 EVs sold in 2021 went to China, and the country currently leads the world in consumer acceptance for EVs at 30% of new car sales. In fact, many experts believe China can seize as much as 60% of global EV sales!
When it comes to the supply chain, China also dominates; it currently accounts for 70% of global battery cell production capacity. With supportive government policies, including the 2060 carbon neutrality target and a mandate on automakers requiring EVs to account for 40% of all new car sales by 2030, these all point to how growth in the Chinese market is set to continue at breakneck speed.
Which is why I think the bigger investment opportunity could be in China instead, especially as Chinese players already have a huge runway for growth be it domestically (China is already the largest EV market worldwide) or even expanding to become global market leader, on par with Tesla. But since I don’t know which company will emerge as the winner eventually, an ETF that gives me exposure to these largest players may be the safest way to play it.
That’s why I’m watching the NikkoAM-StraitsTrading MSCI China Electric Vehicles and Future Mobility ETF (SGX:EVS (SGD primary currency) or EVD (USD secondary currency)). This ETF tracks the MSCI China All Shares IMI Future Mobility Top 50 Index and best represents the broader China’s EV and future mobility ecosystem, with not only EV manufacturers but also other players across the value chain.
From an index methodology perspective, the stocks selected to create the index are based on the parent index – the MSCI China All Shares Investable Market Index (IMI). MSCI uses natural language processing and algorithmic tools to screen out keywords and phrases from data sources to identify the top 50 largest companies that fit in the theme of China EV and future mobility ecosystem.
Aside from getting diversified exposure to top Chinese carmakers including NIO, BYD, Geely and Li Auto, the ETF also includes companies across the industry’s broader value chain, such as lithium battery manufacturers, solar inverters, automation control (for autonomous driving), etc. These can include companies listed in the US, Hong Kong, China and other markets.
In terms of fees, the ETF’s expense ratio is 0.70% p.a., which is competitive within the thematic ETF space, but the best part is that the fees are capped and any expenses in excess of the 0.70% per annum will be borne by the manager, Nikko Asset Management Asia (NikkoAM), rather than the fund itself.
Some of you might recognize the ETF manager, as NikkoAM is prominent in the local ETF scene and already has 5 other well-known ETFs listed on SGX, including:
- NikkoAM Singapore STI ETF
- NikkoAM-StraitsTrading Asia ex Japan REIT ETF
- ABF Singapore Bond Index Fund
- Nikko AM SGD Investment Grade Corporate Bond ETF
- NikkoAM-ICBCSG China Bond ETF
Do note that this ETF is generally higher risk (limited to one sector) and more volatile in nature, especially in contrast to many of the other ETFs listed above by the same ETF manager. This is a feature of it being a thematic ETF and focused on a subset (China) of a standalone industry (EVs and Future Mobility), so you should not expect it to give you the same level of stability or diversification as a broader ETF or an entire country market index-based ETF.
Sponsored Message NikkoAM is one of Asia’s largest asset management firms, and was recently awarded the best ETF provider in Singapore for 2022 at the Asset Asian Awards 2022.
Just like its other ETFs, you can get access to the NikkoAM-StraitsTrading MSCI China Electric Vehicles and Future Mobility ETF (SGX:EVS or EVD) through FundSupermart, or via any brokerage that offers you access to the SGX market and ETFs. Or, if you’re a whale and you intend to invest 50,000 units or more, you can get access via participating dealers for direct subscriptions:
- CGS-CIMB Securities
- FSMOne
- Futu Singapore (moomoo)
- iFast Financial
- Phillip Capital
- Tiger Brokers
- UOB KayHian
If you’re thinking of doing dollar-cost averaging into this ETF, you can also do that via the regular saving plans (RSP) options offered by Phillip Securities (Share Builders Plan) or FundSupermart as well.
Of course, I’m mindful that there are potential risks involved as well. The central Chinese government has recently phased out its subsidies for EVs, although some local cities (like Shanghai) continue to offer them. While I generally believe the Chinese government will continue to support the growth of the EV industry, there’s no telling what policy changes may happen down the road. Individual stocks in the EV space can also be quite volatile, and ultimately, the success of each stock boils down to the execution of business plans by each EV company.
Conclusion
The future of transport will very likely include not just mass adoption of EVs, but also autonomous vehicles, distributed energy storage, intelligent transport systems, more advanced batteries, and more. There’s no doubt that at the rate of which government policies and car players are moving, we will see this future arrive sooner rather than later.
If you’re a good stock picker, do start identifying companies that you think will likely outperform and dominate, whether that’s Tesla, BYD, Nio, or any other player. Personally, I’m not a fan of Tesla and find it overvalued even at today’s prices, whereas I feel a bigger opportunity might sit with the Chinese manufacturers and suppliers.
But if you’re not so sure, or you prefer not to deal with the uncertainty and volatility that comes with individual stock picks, a fuss-free approach to access a portfolio of companies that best represents the EV and future mobility ecosystem within a single trade might be a better way. And if you’re convinced China will continue its growth trajectory, then an ETF like SGX:EVS or EVD might be a great way to ride on that wave.
What do you think about this ETF? Share your thoughts with me below!
Read more details about the ETF (SGX:EVS or EVD) here to help you decide!
Disclosure: This post is written in collaboration with Nikko Asset Management to raise awareness about their EV ETF, which was successfully listed on SGX just over a year ago. All research and opinions are that of my own. You should read more about the ETF here and here, or speak with a licensed financial advisor, in order to help you arrive at your own decision whether this fund might be suitable for your investment objectives.
Important Information: This document is purely for informational purposes only with no consideration given to the specific investment objective, financial situation and particular needs of any specific person. It should not be relied upon as financial advice. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. You should seek advice from a financial adviser before making any investment. In the event that you choose not to do so, you should consider whether the investment selected is suitable for you. Investments in funds are not deposits in, obligations of, or guaranteed or insured by Nikko Asset Management Asia Limited (“Nikko AM Asia”). Past performance or any prediction, projection or forecast is not indicative of future performance. The Fund or any underlying fund may use or invest in financial derivative instruments. The value of units and income from them may fall or rise. Investments in the Fund are subject to investment risks, including the possible loss of principal amount invested. You should read the relevant prospectus (including the risk warnings) and product highlights sheet of the Fund, which are available and may be obtained from appointed distributors of Nikko AM Asia or our website (www.nikkoam.com.sg) before deciding whether to invest in the Fund. The information contained herein may not be copied, reproduced or redistributed without the express consent of Nikko AM Asia. While reasonable care has been taken to ensure the accuracy of the information as at the date of publication, Nikko AM Asia does not give any warranty or representation, either express or implied, and expressly disclaims liability for any errors or omissions. Information may be subject to change without notice. Nikko AM Asia accepts no liability for any loss, indirect or consequential damages, arising from any use of or reliance on this document. This advertisement has not been reviewed by the Monetary Authority of Singapore. The performance of the ETF’s price on the Singapore Exchange Securities Trading Limited (“SGX-ST”) may be different from the net asset value per unit of the ETF. The ETF may also be suspended or delisted from the SGX-ST. Listing of the units does not guarantee a liquid market for the units. Investors should note that the ETF differs from a typical unit trust and units may only be created or redeemed directly by a participating dealer in large creation or redemption units. Nikko Asset Management Asia Limited. Registration Number 198202562H.
