The EV market has been volatile since the start of the year, with the S&P Kensho Electric Vehicles Index falling 10.8% year to date. Market volatility will likely persist in the short term, with President-elect Donald Trump expected to repeal the $7,500 federal tax credit for EVs.
According to Yahoo Finance, the $7,500 federal tax credit for EVs, introduced by the Biden administration’s Inflation Reduction Act, which played a pivotal role in accelerating EV adoption, could have significant impacts when repealed.
How Losing the Credit Could Stall Short-term Growth
According to Cox’s Kelley Blue Book, as quoted on Yahoo Finance, EV sales have surged since the act’s implementation in 2022. EV sales jumped 46% to 1.19 million units in 2023 from 813,000 in 2022.
Per a report — “The Effects of ‘Buy American’: Electric Vehicles and the Inflation Reduction Act” — removing the tax credit could result in a 27% drop in U.S. EV sales, translating to 317,000 fewer EV registrations, significantly impacting short-term EV sales.
According to Morgan Stanley’s Adam Jonas, as quoted on Yahoo Finance, removing the tax credit would make EVs considerably more expensive, reducing demand unless manufacturers offset costs with increased discounts.
The inevitable drop in demand could prompt automakers to scale back EV production further, causing these incentives to disappear and prompting the auto industry to push back against the potential repeal of the tax credit.
EV Future Still Holds Promise
Per Morgan Stanley’s projections, the long-term EV adoption will remain robust despite short-term disruptions. Additionally, with governments increasing their efforts toward net-zero emissions and advocating for more sustainable energy solutions, the global EV market is positioned for growth.
According to Chris Hopson, principal automotive analyst for S&P Global, as quoted on Yahoo Finance, if the tax credit is repealed early in 2025, S&P Global may revise its EV forecasts downward while expecting a slight increase in overall sales.
Some relief may come from states introducing their tax credits to offset the loss of federal incentives, with California already exploring this option.
ETFs to Consider
Investors can keep a watch on the below-mentioned funds. The inevitable global shift toward electric vehicles presents these funds with growth opportunities, offering significant potential for long-term investors. However, those with a short-term focus may face some challenges.
Global X Autonomous & Electric Vehicles ETF (DRIV – Free Report)
Global X Autonomous & Electric Vehicles ETF seeks to track the performance of the Solactive Autonomous & Electric Vehicles Index with a basket of 75 securities. The fund has amassed an asset base of $400.8 million and charges an annual fee of 0.68%.
Global X Autonomous & Electric Vehicles ETF has gained 5.11% over the past month and 3.87% over the past three months.
iShares Self-Driving EV and Tech ETF (IDRV – Free Report)
iShares Self-Driving EV and Tech ETF seeks to track the performance of the NYSE FactSet Global Autonomous Driving and Electric Vehicle Index with a basket of 49 securities. The fund has amassed an asset base of $174.4 million and charges an annual fee of 0.47%.
iShares Self-Driving EV and Tech ETF has lost 0.30% over the past month but has grown 0.89% over the past three months.
KraneShares Electric Vehicles & Future Mobility ETF (KARS – Free Report)
KraneShares Electric Vehicles & Future Mobility ETF seeks to track the performance of the Bloomberg Electric Vehicles Index with a basket of 56 securities. The fund has amassed an asset base of $70.3 million and charges an annual fee of 0.72%.
KraneShares Electric Vehicles & Future Mobility ETF has lost 0.36% over the past month but has risen 14.36% over the past three months.
First Trust S-Network Future Vehicles & Technology ETF (CARZ – Free Report)
First Trust S-Network Future Vehicles & Technology ETF seeks to track the performance of the S-Network Electric & Future Vehicle Ecosystem Index with a basket of 100 securities. The fund has amassed an asset base of $29.6 million and charges an annual fee of 0.70%.
First Trust S-Network Future Vehicles & Technology ETF has gained 2.49% over the past month and 2.19% over the past three months.
