Transportation has been powered by fossil fuels for more than a century, first with coal and then oil. Electric Vehicles (EVs) are set to shake up that paradigm. Investors see that change coming, and they’re looking out for the best EV stocks and ETFs of 2023.
Despite the attention garnered by major US EV makers, the change is driven by China, where EVs and plug-in vehicles (including hybrids) make up 35% of total sales. China represents 58% of EV sales worldwide. This trend is just getting started in the West, with EVs & hybrids making up only 8.4% of US sales in 2023.
Best EV Stocks
EVs are a radical departure from classical automobiles. The core difference is in the need for a large and complex battery pack, while the engines are relatively simple and easy to maintain.
So, in this sector, success often relies on outstanding battery technology and overall R&D efforts, making pure EV companies a little more like tech stocks and less like classic automakers.
We’ll try to offer a diverse view of the sector and focus on a few of the best EV stocks, but we won’t even come close to covering all the possibly attractive stocks.
This list of the best EV stocks and ETFs is designed as an introduction; if something catches your eye, you’ll want to do additional research!
1. Tesla, Inc. (TSLA)
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By market cap, the largest EV company in the world, Tesla, has been at the center of financial markets’ attention for years. It gathers an almost cult-like following, as well as equally opinionated haters. The lightning rod for all sorts of heated opinions is Tesla’s eccentric CEO, Elon Musk.
Tesla’s largest contribution to the EV market has been to make the sector “cool”, with the Roadster 1.0, with performance comparable to a Porsche (and a quite similar price tag). It elevated the image of EVs from boring green to a gold-plated status symbol.
Tesla is a very tech-driven company and is also active in the energy markets (solar and battery packs) and is looking to become the winner in the race for creating the first fully self-driving cars.
A lot hinges on this latest ambition, with Tesla’s market cap sometimes being larger than the rest of the automotive industry combined.
Tesla stock price and valuation multiples are high, reflecting the equally high market expectations. So investors in Tesla will need to be cautious that at least some of the outsized ambitions of the company and Elon Musk succeed, like the expansion into utility-scale batteries, electric semi trucks, and self-driving “robotaxis”.
The question with Tesla is not the quality of the company but its ability to justify the extraordinary valuation the market has placed on it. Valuation matters, and while TSLA is undoubtedly the most popular EV stock, that doesn’t necessarily make it the best EV stock.
📈 Learn more: If you are interested in investing in Elon Musk’s companies, our recent vlogs offer a straightforward guide to buying Boring Company stock and a practical breakdown of options for investing in SpaceX stock.
2. BYD Company Limited (BYDDY)
One of the best EV stocks out there is BYD, which is the strongest driver of China’s industry-leading EV revolution, having sold 1,860,000 vehicles in 2022 for €20.3B of revenues, making it one of the largest private companies in China. It started to make EVs in 2003, long before they moved onto center stage.
The company is active in multiple sectors beyond EVs, like trains, buses, trucks, and industrial equipment, even if EVs are the core of the company’s business.
While mostly staying away from the North American market due to the USA/China rivalry, BYD is expanding overseas, especially in Europe, where it is launching €30,000 models with 265-mile ranges. BYD seems set to beat Tesla and other Western manufacturers to the industry’s holy grail, the affordable and “technically good enough” mass-market EV.
This makes BYD one of the most likely winners in the Chinese automakers racing to expand abroad, perhaps in a repeat of the success of Japanese automakers in the 1980s.
BYD was a long-term holding of Warren Buffett, who bought it early. He recently reduced his exposure, potentially wary of geopolitical risks (he sold TSMC shares in the same period). This is something to keep in mind for US investors, with BYD’s US listing a potential target for sanctions in case of escalating trade wars.
BYD is probably one of the best EV stocks of a non-US company, and the ADRTs trade in the US, making them easily accessible. You will still need a careful assessment of geopolitical risk!
3. Toyota Motor Corporation (TM)
Most classic automakers have been reluctant to turn toward EVs for multiple reasons.
- Costs sunk into internal combustion engine (ICE) technologies and supply chains.
- Initial limitations of EVs (range, safety, costs, etc.).
- Large CAPEX required for battery tech, new assembly lines, etc…
Toyota was slow to embrace EVs. For a long time, it preferred to push for a mix of ICE and hybrid cars instead.
This has radically changed recently, with the unveiling of plans for a 900-mile battery with a short charging time. This outstanding performance would be made possible by Toyota’s advances in solid-state battery technology, an elusive technology that promises performance leaps ahead of lithium-ion: safer, more charge, quicker charge, less weight, etc…
These solid-state battery EVs should become available in 2027-2028, leaving Toyota enough time to build up the necessary battery factories and ramp up production to a massive scale.
Toyota is one of the best EV stocks for investors skeptical of the mainstream narrative around EVs. The company has been a leading automaker for decades and excels at mass-producing cars efficiently.
The EV market is brimming with attractive stocks, and identifying the best EV stocks can be challenging. Toyota’s slow adoption of EVs was not a mistake but instead an astute business decision. Rather than join the horde churning out technologically similar cars, Toyota may have waited for a battery technology that gives it a technological advantage to match its brand presence, manufacturing capacity, and reputation for quality and durability.
4. ON Semiconductor Corporation (ON)
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The technological improvements in engines and batteries for EVs rely on systems called “power electronics”. They allow for massive amounts of energy to be moved around a machine in a controlled and safe fashion.
A leader in this segment is ON Semiconductors, whose equipment uses silicon carbide, a type of silicon compound used for high-energy electric systems. Without it, fast charging and high performance of EVs would be impossible.
ON’s products are also used in other sectors using high power, like telecommunications, computing, green energy, and industrial activities. The energy and EV sectors are where the company expects most of its projected 7-9% CAGR to come from. This makes it a strong contender when considering the best EV stocks for potential long-term growth.
The company’s leadership in silicon carbide allowed it to grow revenues by 26% in the 2020-2022 period and to multiply its free cash flow 10x since 2019, reaching $1.6B in 2022. The company expects its free cash flow to double by 2027.
While very aggressive, this growth target might be achievable, with almost all of the largest corporations active in EV, electronics, tools, telecom, solar, and data appearing on the company’s client list.
This is more of a “pick-and-shovel” type of stock with a very strong growth profile, whose main thesis is the ongoing electrification of the world, from the industrial sector to energy generation systems, heating, and transportation.
Inventors will nevertheless need to be wary of valuation, as the company currently trades at a rather high price to free cash flow multiple.
5. Contemporary Amperex Technology Co., Limited – CATL (300750.SZ)
In the hunt for the best EV stocks, one cannot overlook China-based CATL, THE world’s uncontested leader in battery manufacturing, producing around half of the world’s total batteries if measured by GWh. This makes it a prime supplier of the EV industry’s most critical component.
CATL started as a battery supplier to the electronics industry and quickly embraced EV batteries, being one of the first suppliers to Chinese automakers and Tesla.
The company has invested a massive amount of R&D efforts into new battery technologies. This gives the company a unique lead in new chemistries:
- Lithium iron/ferrum phosphate (LFP) battery technology, used for cheap and “dense enough” batteries with low costs, is a good candidate for cheap EV designs.
- A 160 Wh / kg Sodium-ion battery, announced in 2021, which uses sodium instead of lithium, cuts costs and removes the risks of lithium shortages and highly volatile prices.
- A 330 Wh/ kg ultra-durable “million miles” battery that charges to 80% in 5 minutes is ready for commercialization, which should definitely address the problem of durability and the “anxiety range” for EVs.
And this is only for soon-to-be commercialized battery tech. CATL has also announced a record-breaking 500 Wh/kg “condensed” battery, which would be as dense as some proposed solid-state batteries while still relying on better-understood lithium-ion supply chains.
The unique production scale of CATL makes it a central supplier for any automaker looking to launch EV models without spending tens of billions in battery R&D.
CATL’s innovation capacity also makes it a prime candidate to benefit from the rising demand for utility-scale batteries, where different battery chemistries, more focused on durability and costs than density, might be a better choice than lithium-ion chemistry.
While it’s among the best EV stocks available, purchasing CATL stock has its challenges. The main risk for investors in this company is not business-related but the rising US-China tensions, with the stock only listed in Chinese exchanges.
A repeat of Huawei falling under sanctions and being banned from selling to Western markets is a distant but very real possibility. So cautious diversification is highly recommended despite CATL’s lead in the industry.
Best EV ETFs
The EV sector is rapidly changing, and identifying the best EV stocks for long-term gains can be a challenge. That makes diversification critical. For many investors, especially those with limited funds, that makes an ETF an attractive choice.
1. KraneShares Electric Vehicles & Future Mobility Index ETF (KARS)
This ETF covers most of the EV and battery manufacturers, its top holdings being Tesla, Panasonic, Rivian, and Samsung. It also includes some producers of battery metals (nickel, cobalt, lithium).
2. Global X Autonomous & Electric Vehicles ETF (DRIV)
This ETF focuses on the tech side of the EV industry, with a strong focus on the leader of autonomous driving. So, it includes not only Tesla and Toyota but also AI leaders like NVidia, Apple, Alphabet, and Intel.
This makes it an ETF for investors who believe in the imminence and importance of AI & self-driving but aren’t sure who will dominate these sectors.
3. Global X Lithium & Battery Tech ETF (LIT)
EV growth is driving demand for batteries and for lithium. This ETF is good for getting exposure to these key suppliers of the EV industry whose fortunes will be linked to EV adoption. This ETF is heavily focused on commodity producers, followed by the largest battery manufacturers and EV producers.
4. iShares Self-Driving EV and Tech ETF (IDRV)
This ETF is focused on smaller EV companies, with its top holdings being ambitious startups like Rivian, Xpeng, and Li Automotive. It also includes larger automakers and lithium producers. This should make it a more volatile ETF but also one with more upside potential in case these companies keep growing or are the first to solve self-driving.
Conclusion on the Best EV Stocks and ETFs
EVs are almost certainly going to dominate the transportation sector eventually. The questions are how fast and with which technology. Enthusiasts expect it to happen very quickly, while skeptics believe it will at least require significant progress in battery technology to see mass adoption, like the one promised by solid-state batteries or new chemistries.
The answers to these questions will affect the choices investors will make and their perceptions of what are the best EV stocks for the long term.
The EV sector has also been a very active and popular sector in the past years, often driving valuations to astronomical and possibly unsustainable levels. Attention to valuation metrics and avoiding overpayment might be very important for good future returns.
Lastly, the growing strategic importance of this industry makes it a likely center of focus in a trade war, geopolitical rivalry, and other political interferences. Geographical diversification will be important as well.