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3 ETFs to Ride the Tesla Wave and the EV Revolution
Tesla's (TSLA) recent stellar earnings performance, marked by a remarkable 22% single-day surge that added nearly $150 billion to its market value, has thrown the electric vehicle (EV) market back in the spotlight.
The company's Q3 2024 results easily exceeded expectations, with earnings per share reaching $0.72, significantly beating analysts' estimates of $0.58. Most notably, Tesla achieved a breakthrough in production efficiency, with costs dropping to a record low of $34,544 per vehicle, resulting in an improved per-vehicle gross profit of $8,698.
But the momentum extends beyond Tesla's individual success to unprecedented global EV adoption rates. In the first half of 2024 alone, global EV sales reached 3.4 million units, representing 25% year-over-year growth.
Three ETFs – KARS, DRIV, and TSLL – stand out in the EV ecosystem, each offering distinct approaches to this technological revolution. The automotive industry's transformation extends beyond vehicle manufacturers to encompass battery technology, charging infrastructure, and autonomous driving systems. With EV sales reaching a record 8.9% market share in the U.S., these ETFs provide targeted exposure for investors eyeing more upside.
#1. KraneShares Electric Vehicles and Future Mobility ETF
The KraneShares Electric Vehicles and Future Mobility ETF (KARS) has carved out a unique position in the EV space since its January 2018 launch. The fund's strategy extends beyond traditional automakers, encompassing the entire electric vehicle ecosystem through a meticulously curated portfolio.
By tracking the Bloomberg Electric Vehicles Index, KARS captures the full spectrum of EV innovation - from battery manufacturers and charging infrastructure to autonomous driving technology and critical materials suppliers. What sets KARS apart is its significant tilt toward Asian markets, and particularly China, which accounts for over 37% of holdings - a deliberate choice, given the region's dominance in the global EV supply chain and market adoption.
With about $80 million in assets under management, KARS offers a modest 1% dividend yield, distributing $0.23 annually per share.
Looking at the portfolio composition, KARS has assembled an impressive roster of global EV leaders. China's battery giant Contemporary Amperex Technology leads the holdings at 4.90%, emerging EV manufacturer Li Auto (LI) follows at 4.24%, Warren Buffett pick BYD (BYDDY) is at 4.16%, Arcadium Lithium (ALTM) accounts for 3.83%, and Geely Automobile (GELYF) checks in at 3.75% to round out the top 5.
KARS is down 14% on a year-to-date basis, but has shown more positive momentum lately, up 17.3% in the last three months.
The ETF's focused approach comes with its considerations - a relatively high expense ratio of 0.72%, and significant exposure to emerging markets.
#2. Global X Autonomous & Electric Vehicles ETF
Unlike its peers, the Global X Autonomous & Electric Vehicles ETF (DRIV) takes a broader approach to the EV revolution by blending traditional automotive giants with cutting-edge technology companies. Since its inception, this $415 million fund has maintained a balanced exposure across the automotive value chain, spanning from established manufacturers to innovative tech firms developing autonomous driving solutions.
DRIV is down 8.4% on a year-to-date basis, but has gained 7.3% over the past 52 weeks.
The fund's portfolio construction reveals a sophisticated approach to investing in the evolving automotive landscape. Tesla (TSLA) features prominently at 3.32% of holdings, but it's NVIDIA Corporation (NVDA) that leads the pack at 3.52%, reflecting the growing importance of chip technology in modern vehicles. Software giant Microsoft (MSFT) and Waymo parent Alphabet (GOOGL) follow at 3.02% and 2.87% respectively, while Toyota Motor (TM) rounds out the top five at 2.72%.
DRIV's sector allocation strategy particularly stands out, with a well-thought-out distribution across automobile manufacturers (35.5%), construction machinery and heavy equipment (21.8%), and automotive parts (14.8%). This diversification extends geographically, with significant stakes in Chinese (19.9%) and German (14.0%) regions, offering exposure to the world's most dynamic EV markets.
The fund's semi-annual distribution yields a respectable 1.59%, providing a modest income stream alongside potential capital appreciation. With a competitive expense ratio of 0.68%, DRIV manages costs while maintaining comprehensive market coverage.
Risk considerations include the fund's concentrated exposure to automotive and technology sectors, plus significant international market exposure. However, this global approach also provides built-in diversification across the autonomous and electric vehicle value chain, potentially helping to moderate company-specific risks while capturing opportunities across multiple markets and technologies.
#3. Direxion Daily TSLA Bull 2X Shares
The Direxion Daily TSLA Bull 2X Shares (TSLL) is a unique offering in the EV investment landscape, employing a bold leveraged strategy that aims to deliver 200% of Tesla's daily performance. With a substantial $2.50 billion in assets under management, this ETF has captured attention through its amplified approach to Tesla's market movements.
The fund looks to double Tesla's daily returns, so given the underlying stock's dramatic yearly performance, it's not surprising to see TSLL down 18% YTD - but up nearly 47% over the past six months.
The portfolio construction of TSLL reflects its specialized focus, maintaining a carefully balanced mix of Tesla exposure through both direct and derivative positions. Tesla swaps represent the largest allocation at 30.62%, complemented by direct Tesla stock holdings at 17.42%.
A substantial portion of the portfolio (36.83%) is strategically allocated to cash equivalents and fixed income instruments, primarily through the Goldman Sachs Sterling Fixed Income Portfolio, providing the necessary foundation for the fund's leveraged strategy.
What sets TSLL apart is its 2.33% forward yield, an attractive feature for a leveraged ETF. However, this comes with a relatively high expense ratio of around 1%, reflecting the complexity of managing its leveraged position.
The fund's daily rebalancing mechanism introduces unique considerations. Unlike traditional ETFs, TSLL's performance can diverge significantly from Tesla's stock movements over extended periods due to the compounding effect of daily leverage. This characteristic makes the leveraged ETF best-suited for short-term tactical positions rather than long-term holdings.
Risk factors deserve special attention with TSLL. The leveraged structure magnifies both gains and losses, potentially leading to substantial capital fluctuations. The single-stock focus eliminates diversification benefits, while the daily rebalancing requirement can result in tracking discrepancies over time. These factors combine to create a high-risk, high-reward profile that demands active monitoring and clear strategic objectives.
Conclusion
Tesla's recent surge has spotlighted EVs, and these three ETFs each offer a different angle into this niche of the market. KARS provides broad exposure with a strong focus on Chinese players, DRIV balances traditional automakers with tech innovators across global markets, while TSLL delivers leveraged Tesla exposure for tactical positions. Each fund presents unique risk-reward profiles in the evolving EV landscape.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
