There is arguably been no hotter area in the financial markets over the past few years than electric vehicles. Even after accounting for a 33% pullback this year, shares of EV maker Tesla grew more than tenfold from the start of 2019 through today, making the company one of the most valuable in the world.
At its peak, Tesla was worth more than $1.2trn, and even today, its $700bn market cap makes it the fifth-largest of all US companies.
Tesla helped drive excitement and adoption of electric vehicles for investors and consumers alike. It is the world’s largest EV company, both by market cap and units sold, but it is far from the only notable company in the space.
The company’s 936,000 units sold in 2021 accounted for 14% of plug-in global sales (all-electric plus hybrids) and 21% of all-electric car sales, according to data from CleanTechnica. The EV supply chain is vast and intricate, and even a company as self-sufficient as Tesla must source thousands of parts from outside suppliers, Anthony Sassine, senior investment strategist at KraneShares, said.
That means a singular investment in one stock like Tesla – as compelling a company it may be – does not fully capture the EV space. As with most types of investments, diversification offers investors myriad benefits, and investing in electric vehicles is no different in that regard.
A plethora of EV-related companies went public in 2020 and 2021 including Rivian and QuantumScape, offering investors more choices when it comes to investing in the space.
Industry to grow multifold
The EV industry is poised for tremendous growth over the coming decades.
According to Bloomberg New Energy Finance, there are currently just under 20 million passenger EVs on the road, equal to 1.5% of the global fleet.
That number is expected to grow into the hundreds of millions in the coming years, thanks to a combination of factors including climate concerns and government subsidies.
In certain regions of the world, like in Europe, EVs could make up more than half of all new vehicle sales by the end of the decade.
All of that spells massive growth for EV-related companies, and by extension, a lot of upside potential for the stocks of those companies. Though Tesla has already delivered sizzling returns, KraneShares’ Sassine believes there is still a lot of room for the stock to run, especially when you account for the fact that shares of the automaker have fallen significantly this year amid a broader pullback in growth stocks.
Breaking it all down
For investors seeking exposure to the fast-growing EV market, it is not as simple as buying Tesla and calling it a day. The EV investing landscape is vast and evolving quickly.
This story was originally published on ETF.com