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Should You Dump Tesla But Buy EV ETFs Now?

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Sanghamitra Saha
·4-min read
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One of the hottest tickers of Wall Street that has jumped more than 1000% in the past two years – Tesla (TSLA) – will likely stage a losing streak in the near term on rising rate worries. This high-growth stock lost 8.1% on the Feb 25 Nasdaq bloodbath and shed about 19.4% past month.

Apart from rising rate worries, production issues probably bothered the Tesla stock. The Tesla Model 3 hasn't been in production since Feb 22, according to a recent report, as quoted on cnet.com. The source indicated that Tesla told workers the Model 3 line would not return to production until Mar 7. A Bloomberg article reports that the issue is related to the supply chain woes.

However, this doesn’t mean your dream of investing in the electric vehicle (EV) area is doomed or that you should stay away from one of the most promising investment areas now, i.e., EV. Most recently, Nikola NKLA – manufacturer of electric vehicles – reported narrower-than-expected-loss in the fourth quarter of 2020, signalling the potential that the space holds.

Why Not Bet on EV Space Instead of Tesla?

Tesla may boast a sky-high valuation with forward P/E of 185.29X but electric vehicle ETFs are not that richly valued. iShares Self-Driving EV and Tech ETF IDRV has a P/E of 22.27X. SPDR S&P Smart Mobility ETF HAIL boasts a P/E of 24.07X. KraneShares Electric Vehicles and Future Mobility Index ETF (KARS) has a P/E of about 26.46X.

The ongoing tech volatility doesn’t hurt the long-term prospects of the electric vehicle market. There has been a global drive on auto manufacturers to cut CO2 emission. The very move to bolster clean energy has led to auto manufacturers’ shift from ICE to EV. Europe and China have apparently been leading the way in CO2 emission, thus promoting EV sales.

Per Deloitte, China will hold 49% of the global EV market by 2030, Europe will account for 27%, and the United States will take about 14% share. Deloitte also forecast that China will achieve a domestic market share of about 48% by 2030, while the United States will have it at 27% and Europe is expected to hold 42% share.

The U.S. EV market is almost being supported by Tesla alone while catering to almost half of all EV sales. But Apple (AAPLsaid that it is foraying into the electric vehicle segment. The iPhone maker said it will have a brand-new battery technology, and plans to deliver its first EV sometime in 2024.

In the recent past, more than 10 automakers have come up with their EV plans.  If these plans materialize, the sector will be able to manufacture and sell about 25 million units (of more than 400 models) by 2025, or 20% of all global cars sold, per Frost & Sullivan. General Motors, Toyota and Volvo all have a target of 1 million EV sales by 2025. 

General Motors shares touched their highest levels recently since the company's post-bankruptcy IPO in 2010, after the automaker announced its entry into the electric delivery vehicle business. GM's first BrightDrop commercial vans are expected to be delivered to FedEx later this year.

EV king Tesla has not yet entered the EV delivery business, though startups such as Rivian, Arrival and Canoo (that are developing electric commercial vehicles for customers ranging from Amazon to Hyundai Motor) have a considerable presence in that field.

Chinese carmaker NIO is competing for a share of the EV services market, launching a completely new concept: Battery as a Service. With this concept, NIO is trying to get an edge over rivals such as Tesla by cutting the upfront purchase cost of its vehicles, as quoted on oilprice.com. With the battery-as-a-service model, customers can purchase just the vehicle shell, while they can pay rental fees for the battery.

Bottom Line

In short, don’t be freaked out if there is a freefall in Tesla shares, rather use the dip as an entry point to the high-potential electric vehicle space via ETFs.

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