Let’s begin with a short history lesson, illustrated in the timeline below:

See this great article for a more detailed history of EVs: https://blog.evbox.com/electric-cars-history

Electric Vehicles are all the rage due to their environmental benefits. While they still rely on electricity from fossil fuels, over their lifetime 60-68% fewer emissions are produced, according to the International Council on Clean Transportation[i]. This is one of the fastest growing tech sectors worldwide, fuelled by governments, automakers and consumers globally.

From the consumer standpoint, EVs are attractive as the engines are quiet, and the ride is quite smooth. These vehicles have a higher torque than might be expected as the power is sent straight to the wheels. Plus, they are energy efficient and save trips to the gas station. On the downside, their limited range, high cost, long charging time and relatively few options may leave individuals wary[ii]. However, the availability of charging options may temper the drawback of lengthy charging: home-charging, public charging stations and workplace stations available for employees etc. Noteworthy, is that the charging sector is nascent and growing, so we anticipate opportunities here.

[i] https://cleantechnica.com/2022/04/05/honda-gm-promise-affordable-evs-tesla-bumps-model-3-price-in-germany/

[ii] https://www.lelandwest.com/history-of-the-electric-vehicle.cfm

Despite the green movement and commitments outlined above, we must highlight the impact of the ongoing chip shortages. Intel CEO Pat Gelsinger revised the timeline for remedying the global chip shortage from 2023 to 2024. Further, we have also seen companies announcing delays in production and deliveries of vehicles:

• Ford lost US$ 3.1Bn over the past three months (Q1 2022).
• Audi and parent, Volkswagen, have stripped features from vehicles to keep production moving.
• Honda intends to cut production at a Japan facility by as much as 50% on two lines in early May.
• UK production declined by over 30% in March 2022.
• Rivian CEO estimates that all the world’s cell production is less than 10% of what is needed in 10 years.
• Tesla CEO has tweeted on the future scarcity of battery supplies, indicating that “Tesla might actually have to get into the mining and refining directly at scale, unless costs improve”.

The robustness and speed with which the EV industry is expected to grow would indubitably be hampered by the shortage of chips and battery cells. What’s more, Russia’s siege in Mariupol adversely impacts three of the world’s largest neon companies, exacerbating the chip crisis. Neon is required for the lasers used to transform silicon into microscopic circuits.

These limitations may drive owners of capital diverting ESG and “clean” investment allocations to EV alternatives like Hydrogen. Toyota and Honda have already developed fully functional hydrogen vehicles. One key advantage of EVs over hydrogen vehicles is their rechargeability versus the expansive refuelling network required for their hydrogen counterparts.

Would the numerous issues, from battery making material to chip shortages and supply chain logistic issues cause investors to divert funds to hydrogen cell technology? This seems unlikely at this time as the momentum of the market seems to favour the EV route.

These two companies are no strangers to working together, having collaborated numerous times in the past decade. Most recently they have announced plans to team up to produce EVs in the US$30K range by 2027, by sharing their best technologies, design and manufacturing. Through the partnership and using GM’s Ultium battery technology, the companies can realize economies of scale and Honda can accelerate its electrification roadmap in North America.[v]The gameplan is to allow people the world over, sooner access to affordable EVs than either company could achieve on its own.

Would this be a thorn in Tesla’s side? Tesla is undoubtedly the current market leader when it comes to EVs. However, the average Joe cannot afford to purchase and maintain a Tesla – its Model 3 starts at US$ 47K, Model Y at US$ 63K, Model S US$100K and Model X US$ 115K[vi]. The company increased the price of the Model 3 for its German customers by €7K – making it ineligible for German EV incentives – so effectively Germans are paying €8.5K more than before. Despite rising prices, Tesla retains its leading position and has consistently increased sales quarter after quarter. So, will Tesla lose market share to GM/Honda? We surely think so – and not just to Honda and GM. More and more companies, both established and new, are bringing (or planning to bring) EVs to market. Tesla may realize first-mover benefits and brand loyalty now, but has its dominance really been challenged in its 15+ years of existence? The novelty of the market and technology is wearing off and in the coming years the market will look different still – increased number of players, greater product differentiation, tried and true formula and business processes, evolution in cost and pricing dynamics so on. Tesla would have to up its innovation and marketing game to retain its market leader position.

[v] https://www.thetruthaboutcars.com/2021/07/why-did-honda-pair-with-gm-on-evs/

[vi] https://www.tesla.com/compare

The Fund seeks to track the investment results of the NYSE FactSet Global Autonomous Driving and Electric Vehicle Index. The Index is composed of developed and emerging market companies that may benefit from growth and innovation in and around electric vehicles, battery technologies and autonomous driving technologies.

Its top holdings as at the end of March 2022 were Apple (5.07%), Tesla (5.04%), Intel Corp (4.74%), Toyota (4.71%) and Alphabet (4.62%). It is concentrated in US companies and has heavy exposure to consumer cyclical (43.73%) and technology (41.48%) industries. IDRV’s market price is US$42 a share as at time of writing.

The objective of KARS is to provide gross investment results that correspond generally to the price and yield performance of the Solactive Electric Vehicles and Future Mobility Index. Currently it is trading at US$ 34.84, representing a 1.84% premium to its NAV of US$ 34.21. Its top five holdings are Tesla (5.94%), Contemporary Amperex Technology (5.08%), Analog Devices Inc (5.03%), Infineon Tech (4.98%) and Ford Motors (4.78%).

Like KARS, this Fund aims to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive Autonomous & Electric Vehicles Index. It provides exposure to exchange-listed companies that are involved in the development of electric vehicles and/or autonomous vehicles.

Its market price stands at US$ 24.56 as of 29 April 2022, 0.5% higher than its NAV of US$ 24.44. Its top holdings are Apple (3.37%), Alphabet (3.345%), Tesla (3.3%), Nvidia (3.29%) and Toyota (3.03%). As seen below, DRIV is concentrated in US Companies. From an industry concentration perspective, its heaviest exposures are consumer cyclicals and technology.