The electric vehicle industry has faced challenges in 2024, but a more favorable outlook is anticipated for 2025.
Over the past decade, companies manufacturing electric vehicles, such as Tesla (NASDAQ: TSLA), have seen significant growth but are now encountering weakened demand in key regions like the United States and Europe. The challenging economic environment, characterized by high interest rates, has directed consumers towards more affordable gas-powered vehicles. Furthermore, a study by Goldman Sachs indicates concerns regarding limited rapid charging infrastructure and declining prices in the used electric vehicle market.
Tesla’s deliveries might decrease this year, marking a first since the introduction of the Model S in 2011. Nonetheless, CEO Elon Musk anticipates a sales increase of up to 30% in 2025, a result of falling interest rates and an increased emphasis on autonomous driving. Investors seeking exposure to this trend might consider the Global X Autonomous and Electric Vehicles ETF (DRIV), which offers diversified investment opportunities in the sector.
In the realm of autonomous driving, technology companies lead the charge, whereas traditional manufacturers such as Toyota, Volkswagen, General Motors, and Ford Motor Company continue to produce most of the world’s automobiles. Newer companies, including Tesla and BYD from China, dominate the EV market, and legacy manufacturers are struggling to establish a significant presence in the autonomous driving technology sector.
The Global X ETF comprises 75 stocks, and its top five holdings include companies like Nvidia, Tesla, Microsoft, Alphabet Class A, and Toyota. Nvidia, primarily recognized for its GPUs used in AI model development, has created the Drive platform, which equips car manufacturers with the necessary tools to enable autonomous driving in their vehicles. Prominent companies like Mercedes-Benz and Tata Motors are among Nvidia’s clientele.
Tesla remains a pioneer in developing self-driving technologies and recently introduced its Cybercab robotaxi EV, autonomous and devoid of steering wheels or pedals, scheduled for mass production in 2026. Microsoft has expanded its influence in AI services through a $10 billion investment in OpenAI, offering a suite of tools for autonomous driving solutions via its Azure cloud platform. Companies like Volkswagen, Cruise, and General Motors are leveraging these resources.
Alphabet, Google’s parent company, actively participates in autonomous driving through its majority stake in Waymo, which conducts over 100,000 driverless ride-sharing trips weekly across major U.S. cities. Recently, Alphabet injected $5 billion into Waymo and received an additional $5.6 billion from external investors to expedite progress.
Beyond its primary holdings, the Global X ETF has smaller positions in companies such as General Motors, Ford, Stellantis, and Nio, along with investments in supply chain entities like lithium producers Arcadium Lithium and Lithium Americas Corp.
Despite being down 3% this year, underperforming the S&P 500, which has risen 23.4%, the Global X ETF holds the potential for recovery in 2025. Nvidia has already seen significant gains, and if Tesla’s sales increase as projected, a rebound in the broader EV industry could follow, supporting many ETF stocks.
The fund’s expense ratio stands at 0.68%, notably higher than those managed by firms like Vanguard, which typically charge 0.1% or less. Thus, substantial returns would be necessary to justify the cost. While there’s no certainty the ETF will achieve these results, its composition and potential upside in the EV sector could make it a valuable component of a diversified portfolio alongside other funds and individual stocks.
