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It’s easier to be exceptional, like Tesla stock, when you’re the only choice. But now Tesla (TSLA) faces tougher competition among investors, including those managing ETFs looking for exposure to electric vehicles.
Practically overnight, Tesla stock went from being a winner-takes-all juggernaut to one facing two legitimate electric-vehicle (EV) rivals in the U.S.: Rivian Automotive (RIVN) and Lucid Group (LCID). Those two companies, both brand-new stocks this year, now command a combined market value of $213 billion.
Just these two rivals are already worth more than twice General Motors (GM) — and 23% more than GM and Ford (F) combined — and they’re yet to ship vehicles in any volume. Both stocks, too, are outperforming Tesla’s this year. For the first time, Tesla stock is facing serious competition for buying activity by funds.
“Tesla has been the only ‘real’ EV play in U.S. equity markets for years. Now it has competition for the marginal investor,” said Nicholas Colas, co-founder of DataTrek Research. And looking at ETFs, there’s plenty of room to buy the newbies.
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Thanks to a powerful 140% rally in the past year, Tesla’s market value now tops more than $1 trillion. That’s impressive. But it also puts somewhat of a cap on how much more buying activity it’ll get from ETFs.
Tesla stock is already a 2.2% weight in SPDR S&P 500 ETF (SPY). That puts it behind just four other massive S&P 500 companies. And it’s already an oversized holding in many ETFs that focus on autonomous or electric cars. Simplify Volt RoboCar Disruption and Tech ETF (VCAR), puts upward of 40% of its portfolio in Tesla, if you count options exposure, says co-manager Tad Park.
Meanwhile, not a single ETF, yet, owns either Rivian or Lucid, despite their massive market values. But that’s likely to change fast. Part of it is by design, Park says. He still thinks Tesla will ultimately win the self-driving battle. And that’s why he’s overweighting it. With that said, Rivian and Lucid are likely to find more success, too, than GM or Ford who aren’t solely focused on the future. The ETF will add both Rivian and Lucid. “We plan to hold a position,” he said.
Additionally, Rivian and Lucid are potential adds to other funds. Rivian stock isn’t in any major indexes, yet. But active managers are free to buy it. And index inclusions will likely occur. The company is already worth more than $126 billion. That makes it the 74th most valuable company in the S&P 500.
Rivian and Lucid aren’t holdings in EV ETFs, yet. But there are still multiple funds that let investors participate in the future of mobility by spreading their bets around, says Todd Rosenbluth, head of mutual fund and ETF investing at CFRA.
His top choices are the two largest EV ETFs. That includes the $1.3 billion in assets Global X Autonomous & Electric Vehicles ETF (DRIV) and the $551 million iShares Self-Driving EV and Tech ETF (IDRV). He likes both as “ways to get exposure to the increased spending to support electric-vehicles usage that was part of the infrastructure spending bill,” he said.
Additionally, these ETFs don’t just own automakers like Tesla stock, Ford and Toyota (TM). But “also technology and communications services companies that are part of the supply chain as well as materials companies making lithium,” Rosenbluth said. “Given the still early development of the electric-vehicles market, a diversified approach that owns companies that are connected to different parts of the market makes sense.”
So far this year, none of the main electric-vehicle or autonomous car ETFs have performed particularly well, though. A universe of seven such popular ETFs is only up 25.8% this year on average going into Wednesday. That’s only fractionally better than the S&P 500’s 25.2% gain this year.
But the true test lies down the road for Tesla stock, as major rivals start shipping cars. “Investors cycle through new companies as they go public, selling the ‘old’ name and replacing it with the ‘new,’ Colas said. “With Tesla still 2.1% of the S&P 500, it will be interesting to see how this all plays out.”
Recent EV initial public offerings surpass market values of other industry players
Follow Matt Krantz on Twitter @mattkrantz
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