Reviewing Two Autonomous & Electric Vehicle ETFs
In our recent piece on 13 Artificial Intelligence Trends for Investors to Watch, we noted that the transformational benefits of autonomous driving are still 10 years away. That’s good, because we still haven’t figured out what investments we ought to be making to get a piece of the $7 trillion dollar-autonomous vehicle opportunity.
Last week, we looked at some of The Autonomous Vehicle Companies in the Self-Driving Race, noting the massive web of investments being made across the autonomous vehicle landscape. As risk-averse investors, we want to be very careful about trying to pick a winner here. We’d much rather find a company that benefits regardless of who wins the race, especially considering that there will likely be a number of winners. A good example of this in the world of artificial intelligence chips would be Synopsys (SNPS).
Whenever there’s a technology theme we want exposure to, we start by looking for ETFs. Turns out there are two Autonomous & Electric Vehicle ETFs out there with a meaningful amount of assets under management (AUM).
|Ticker||Created||AUM (millions)||Expense Ratio|
|Global X Autonomous & Electric Vehicles ETF||DRIV||Apr-18||$197||0.68%|
|iShares Self-Driving EV & Tech ETF||IDRV||Apr-19||$144||0.47%|
You may be wondering why both ETFs cover electric vehicles and vehicle autonomy. Perhaps by the time fully autonomous vehicles arrive, all new vehicles will be electric, much to the chagrin of those who prefer the crackle and pop of a turbocharged V8 with a manual transmission.
Two Autonomous & Electric Vehicle ETFs
The majority of ETFs are based on an underlying index. The index providers for these two ETFs are as follows:
- Global X – Uses the “Solactive Autonomous & Electric Vehicles Index” which selects companies using natural language processing algorithms that screen publicly available information such as financial websites, search engines, or company publications.
- iShares – Uses the “NYSE FactSet Global Autonomous Driving and Electric Vehicle Index” which selects companies using a rules-based process which is based on industry classifications.
As we often see with most thematic indices, rarely will index providers agree on what constituents ought to be included. This shows how objective this stuff can be. We often need to dig into filings manually and really sniff around to figure out where revenues are coming from. That’s tough when you’re investigating a technology theme that won’t come to market for another decade.
When it comes to which companies are dabbling in electric vehicles and autonomy, Solactive and Factset can only agree on 36 names which are found in both indices.
Today, we want to focus on the 36 companies both index providers believe provide exposure to these two themes.
NIO, BYD, Tesla, Toyota, GM, Honda, Ford, Hyundai, and Nissan are among many carmakers trying to master autonomous driving. Trying to cherry-pick which auto manufacturers will pull ahead in the self-driving race seems to be a difficult task which probably can’t be determined by counting the number of times the company refers to autonomy on their website and their marketing collateral. Still, both index providers believe that 6 of the 14 major auto manufacturers have a better chance than the rest.
There’s also an argument that once we achieve autonomy, private ownership of cars will plummet since autonomous transport will be cheap, ubiquitous, and kept running 24/7 by a garage full of robots. On the other hand, some feel the auto industry stands to benefit from the emergence of self-driving vehicles. If you believe that’s the case, then maybe consider the First Trust NASDAQ Global Auto Index Fund (CARZ) which contains all major global auto manufacturers.
If you want to try and pick the automaker that’s winning right now, experts seem to think that Tesla is leading the charge based on all the data they’re accumulating. That’s why Tesla is the largest holding in both ETFs – Solactive (10.04%) and Global X (4.6%). There are also experts that believe Tesla is behind the pack, more proof of just how difficult it is to assess who is winning the race.
Since autonomous driving will rely so heavily on electronic components, it’s understandable why these index providers decide to include some chipmakers, starting with the world’s biggest chipmaker – NVIDIA. Also included are Xilinx, Qualcomm, Intel, NXP, Maxim Integrated Products, and On Semiconductor. These large chipmakers dabble in all sorts of things. None would be considered a pure-play on automotive chipsets, nor are any of these companies planning to move in such a specialized direction. That aside, our own portfolio is heavily overweight NVIDIA at the moment, and we don’t want any additional exposure to the chipmaking industry.
Nine Auto Parts Companies
Nine different auto parts companies are listed in both ETFs, each with varying degrees of commitment to vehicle autonomy. Aptiv has a JV with Hyundai called Motional. Veoneer is working to become a pure-play ADAS developer. We’ll take a look at these and others in coming articles on this topic. For now, here’s a list of the nine auto parts companies along with their market caps (in billions) and a basic description.
- Denso (45) – One of the top-five largest automotive component suppliers in the world
- Aptiv (33) – Electrical & wiring products, body controls, infotainment, safety
- Lear Corp (10) – Automotive seating, and electrical distribution systems
- BorgWarner (9) – Turbochargers, electric motors, electronic control units, engine ignition systems, thermal systems, transmission stuff
- Autoliv (8) – Airbags, seat belts, steering wheels & safety electronics
- Visteon Corp (4) – Cockpit electronics: instrument clusters, head-up & information displays, infotainment, audio, connectivity & telematics
- Dana (3) – Power-conveyance and energy-management solutions
- Gentherm (2) – Climate control seats, seat heaters, steering wheel heaters, automotive cables & battery thermal management
- Veoneer (2) – Makes radars and vision systems for advanced driver assistance systems (ADAS)
The eleven remaining companies are a mix of names that may receive benefits from electrification and autonomy, both directly and indirectly.
- Google (Waymo) Apple (Project Titan) Yandex (JV with Uber), and Samsung (various stuff) are tech names that made the list.
- Albemarle and Livent are lithium producers which presumably benefit from the increased production of lithium for electric vehicles. We don’t believe investing in lithium is something investors should dabble in.
- Japanese battery producer GS Yuasa stands to benefit from the electrification of vehicles.
- Panasonic sells lithium batteries for electric vehicles and is also developing their own self-driving technology.
- Johnson Controls is a conglomerate that dabbles in automotive.
- Ambarella sells computer vision systems for self-driving cars, something we touched on in an article titled Ambarella Becomes an Artificial Intelligence Stock.
- II-VI develops engineered materials and optoelectronic components for a number of industries including automotive.
Given the large number of companies found in both ETFs, neither seem like a good way to invest in vehicle electrification or autonomy. We want to find companies that will benefit regardless of which companies end up dominating the self-driving industry and the nine auto parts companies found within the index seem like a good place to probe around next. In a future piece, we’ll dig deeper into the handful of auto parts companies that both index providers believe will benefit from the move towards vehicle electrification and autonomy.
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