Introducing the Global X Electric Vehicle and Battery Active ETF
We have summarized some frequently asked questions on the Global X Electric Vehicle and Battery Active ETF and will share our thoughts in this article.
How Is It Differentiated From Peer Funds?
The rise of electric vehicles (EVs) is leading new industry trends on a global scale. We would like to provide an investable universe and target a basket of the most relevant and innovative companies along the supply chain which are beneficiaries under this theme.
Comparing to other global EV indexes, we highlight the following key differences:
- We do not hold conventional car makers, such as Ford, General Motors, Honda, and Volkswagen. While many of these companies have begun their EV transition and launched new EV models, we think the pace and contribution are yet to be material. We also note the potential cannibalization in revenue as they go through the transition from internal combustion engine (ICE) vehicles to EVs. These companies have to handle internal friction and conflicts, e.g. sales and marketing budget allocation split between ICE vehicles and EVs.
- We avoid internal combustion engines components companies, such as Continental, Vale, and Hyundai Mobis. Their revenue contribution from traditional ICE car design components could fall to zero in a full EV sales environment. These auto parts include the engine, exhaust system, and transmission.
- We prefer companies that enjoy a higher content per vehicle in an EV. For instance, an EV demands a strong powertrain and better thermal management system to bring better energy efficiency and hence increase the performance and range of the vehicle. We consider both existing industry leaders and new entrants who are well-positioned to gain market share.
- We do not have a concentrated industry group. We have high industry group weighting in auto and components, capital goods, and auto semiconductors.
How About Country Allocation?
Our key holdings are companies based in China, the US, Korea, Germany, France, and Japan, covering different parts of the EV and Battery supply chain. For example, Chinese and Korean companies lead the global battery capacity expansion, while auto semiconductor companies are mostly from the US and Europe.
What Are the Sub-Categories?
We have summarized the investable universe into the following major sub-industries – EV maker, battery cell makers, battery material (e.g. upstream resources and battery intermediate goods) providers, battery equipment suppliers, and EV components manufacturers (e.g. EV components and auto semiconductors).
Why Invest in Semiconductor Companies?
This ETF has exposure to semiconductor companies that are leading the global auto semiconductor development (e.g. power semiconductors in EV inverters and autonomous driving-related semiconductor). We believe these companies are well-positioned to benefit from higher semi content per vehicle and are also beneficiaries of recent auto semiconductor shortages. For instance, Nvidia is a top chip maker that provides solutions for autonomous vehicles. It has solid product pipelines and has formed strong partnerships with global EV makers. Infineon is a top power semiconductor manufacturer. The company focuses on automotive applications and is a key beneficiary of higher content per vehicle under the trend of electrification and connectivity.
Ganfeng Lithium and Albemarle
They produce lithium compounds including lithium carbonate, lithium hydroxide, lithium chloride, and value-added lithium specialties. Both companies have a strong asset presence supplying key battery materials to battery markers. They have strong capacity expansion pipelines to meet the growing global lithium and lithium compound demand.
Inovance and Nidec
We expect the powertrain to be an important new component in EV designs. Inovance and Nidec are top powertrain suppliers. Both of them win market share from the EV transition and have solid product pipelines. Inovance ranked third in inverter and fifth in powertrain in 2021 in China. (Source: NE time, Jan 2022). Nidec aims to grow its revenue to 1.3bn Yen in 2025 from 0.4bn Yen in 2020 (Source: Nidec, Jan 2022). Both companies have close collaboration with top EV makers.
Tesla and CATL
Tesla has recently raised their EV prices to pass on higher battery and battery material prices to end customers. On the volume side, it announced 1Q22 quarterly deliveries of 310,048 vehicles, vs. 180,338 during the same period last year (according to Tesla, April 2022), despite the industry supply chain issue and pandemic disruption. It has also recently commercialized the Berlin factory. Tesla remains a leading EV maker with best-selling EV models. It is expected to keep on setting higher standards for EV designs and customer expectations.
For CATL, it has recently raised battery prices to pass on higher battery material prices year-to-date. It is studying new forms of battery designs for better performance and cost competitiveness. CATL also has a strong capacity expansion pipeline globally to address growing global EV penetration and customer needs. CATL remains a top battery producer and leads global battery technology innovation. It is expected to maintain cost leadership and technology innovation to sustain its market-leading position.