Electric vehicle (EV) companies like Tesla (NASDAQ: TSLA) have experienced incredible growth over the past decade, but they have suffered from softening demand in major markets like the U.S. and Europe in 2024.
Tough economic conditions headlined by high interest rates have pushed consumers to buy cheaper gas-powered cars. Plus, a recent study by Goldman Sachs suggests a lack of rapid charging infrastructure, and falling prices in the used market are becoming a concern as more EVs hit the road.
Tesla's EV deliveries could shrink this year for the first time since the company launched its flagship Model S in 2011. However, its CEO, Elon Musk, believes sales could grow by up to 30% in 2025 as interest rates fall, and because of the growing focus on autonomous driving.
The Global X Autonomous and Electric Vehicles ETF (DRIV -1.41%) can give investors broad exposure to that trend. Here's why the exchange-traded fund could be a great addition to any portfolio.
Image source: Getty Images.
Big tech companies are dominating the autonomous driving space
Legacy manufacturers like Toyota, Volkswagen, General Motors, and Ford Motor Company still produce most of the world's cars. However, the EV industry is dominated by newer companies like Tesla and China-based BYD, and when it comes to autonomous driving technology, legacy automakers barely have a foothold at all.
In fact, the Global X ETF holds 75 different stocks, and three of its top five positions aren't car companies at all:
|
Stock |
Global X Portfolio Weighting |
|---|---|
|
1. Nvidia |
3.52% |
|
2. Tesla |
3.34% |
|
3. Microsoft |
3.02% |
|
4. Alphabet Class A |
2.87% |
|
5. Toyota |
2.72% |
Data source: Global X. Portfolio weightings are accurate as of Oct. 28, 2024, and are subject to change.
Nvidia is best known for its powerful graphics processing units (GPUs) for the data center, which are used for developing artificial intelligence (AI) models. However, the company also created a platform called Drive, which provides car manufacturers with all of the hardware and software they need to install autonomous driving capabilities into their vehicles. Leading brands like Mercedes-Benz and Tata Motors (Range Rover and Jaguar) are just some of Nvidia's customers in this space.
Tesla is one of the leading developers of self-driving technologies. In October, it unveiled its new Cybercab robotaxi EV, which is capable of autonomously hauling passengers -- it doesn't even have a steering wheel or pedals. It will go into mass production in 2026, and Musk believes the company will make up to 4 million of them per year.
Microsoft agreed to invest $10 billion in ChatGPT creator OpenAI last year, and the company is now a leading provider of AI services through its Azure cloud platform. Plus, Azure gives developers all the tools they need to create autonomous driving solutions from data ingestion to product validation, and it has attracted big names including Volkswagen, Cruise, and General Motors.
Google parent company Alphabet has taken a more hands-on approach to autonomous driving. It owns a majority stake in Waymo, which completes over 100,000 driverless ride-sharing trips every single week across Los Angeles, San Francisco, and Phoenix. Alphabet recently agreed to inject $5 billion in fresh capital to accelerate Waymo's progress, and it also accepted a further $5.6 billion from outside investors.
Outside of its top five positions, the Global X ETF holds small stakes in General Motors, Ford, Stellantis, and Nio. It's also invested in companies across the supply chain like lithium producers Arcadium Lithium and Lithium Americas Corp.
The Global X ETF is down this year, but it could bounce back in 2025
The Global X ETF is down 3% this year, so it's heavily underperforming the S&P 500, which is up 23.4%.
Despite Nvidia soaring 191% year to date, Tesla, Microsoft, and Alphabet have each posted smaller gains than the S&P. But the ETF is really being weighed down by holdings like Stellantis, which is down 40%, Intel, which is down 52%; and Nikola, which has plunged 78%.
I think Nvidia is set for another great year in 2025, and if Musk is right about Tesla's EV sales growing by 30%, that stock should also do well. That might signal a recovery across the EV industry overall, which could buoy many of the stocks in the Global X ETF.
The ETF has an expense ratio of 0.68%, which is the proportion of the fund deducted each year to cover management costs. It's much more expensive to hold than funds managed by Vanguard, for example, which typically charge 0.1% or less, so investors will want to see outsize returns to justify that cost.
There is no guarantee the ETF will deliver those returns, but given its composition and the potential for a better year for the EV sector, it could be a great addition to a diversified portfolio of other funds and individual stocks.
