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Mish's midweek update: What does EV adoption mean for traders?

Mish's midweek update: MarketGauge's Mish Schneider offers her expert analysis of US markets.

It seems inevitable that more and more drivers will switch to electric vehicles (EVs) – or, at the very least, to hybrid vehicles – in the coming years. 

Speaking from personal experience, I recently switched from a petrol-fuelled car to a hybrid model. Since switching, I have filled up the gas tank only once in two months. I’m one step away from going fully electric, as we await more substantial infrastructure in the south-west of the US. As the map below shows, uptake of EVs in the US is highest in the south-western state of California. 

There are many reasons why consumers and businesses are switching to EVs. Besides concerns over fossil fuels and high fuel prices, the increasing social acceptance of EVs could be a tipping point on the road to mass adoption.

According to a recent Bloomberg article, “once 5% of new car sales go fully electric, everything changes”. The world’s three largest car markets – the EU, China and the US – have all passed that 5% threshhold, as the table below shows. If the US follows the trend set by the 18 countries that exceeded the 5% level before it, then by 2025 it is possible that a quarter of new cars sold in the US will be EVs.

EVs in the US

Despite political opposition, President Biden may declare a climate emergency. Using executive orders, Biden can curb oil and gas drilling on federal land, impose a carbon tariff on imports from countries that have worse greenhouse emissions, and earmark money to accelerate renewable energy rollout.

EVs are likely to be a key part of any emissions-reduction strategy. But in Q1, just 5.3% of new car sales in the US were EVs, as the table above indicates. Among the group of industrialised nations listed in that table, only Italy came in with a lower percentage (4.2%). Oil-rich Norway came first with 83.5%.

However, if there is to be a push towards EVs, one thing to consider is raw material supply. With copper shortages predicted to become severe, supply chain issues could impact the future of EVs. That said, given the shift towards EVs, here are five potential trading ideas that could warrant further investigation:

Global X Copper Miners ETF [COPX] is trading just above $28, not far off its 2022 lows. There is long-term interest in this ETF, which has the potential to move back up to $32-33.

Ford Motor [F] reports earnings on 27 July. Currently trading near pre-pandemic levels, a move above $13 could bring the stock back up to $16-17 in time.

Tesla [TSLA] reports earnings after US markets close today. Regardless of labour and supply chain issues, the EV maker could surprise to the upside. A move over $765 could take the shares back to $900-950.

Li Auto [LI] reports earnings on 9 August. The stock’s all-time high is $47.70, but it currently sits just above $37. A move lower to support at around $29-30 could present a possible opportunity. 

Hyundai Motor [HYMTF], an over-the-counter stock, may attract interest at $37 and even more so at $38-38.50, potentially paving the way for a move towards $60. 

Beware of FOMO

One crucial concept to consider when investing in a “hot” theme is the fear of missing out. The initial move to buy into an emerging trend is often fuelled by so-called FOMO and a herd mentality. This can cause volatility, with rapid and sometimes vicious price swings producing winners and losers.  

The second move, which may take years to unfold (in this case, we may be talking 2035), is often based on realism.

What can we learn from Norway?

As mentioned above, Norway has a high level of EV uptake. This didn’t happen overnight. It took government intervention for the shift to EVs to gain traction. Norway removed taxes on EVs, but continues to tax polluting vehicles. The shift required a political commitment to work towards zero emissions, which involved building and improving infrastructure. 

Price is also an important factor, in terms of the cost of EVs relative to other types of vehicle. But perhaps the most important factor that determines whether or not EVs catch on is a question of perception, or peer pressure. Rising fuel prices play a role too, but what may matter most is that moment when drivers see their friends, relatives and neighbours buy EVs. At that point, demand for EVs in the US and globally will rise, helping us reduce our dependency on fossil fuels. 

Mish’s ETF support and resistance levels

S&P 500 (SPY) Crossed the 50-DMA, now must confirm
Russell 2000 (IWM) Also crossed the 50-DMA and has to confirm 
Dow (DIA) 315, with the 50-DMA now pivotal 
Nasdaq (QQQ) Also crossed the 50-DMA, Netflix should help keep it above
Regional banks (KRE) Finally took out 60.00, now support
Semiconductors (SMH) The whole Modern Family, my group of key economic indicators, has moved above the 50-DMA and must now confirm
Transportation (IYT) 220 support along with the 50-DMA
Biotechnology (IBB) 129.50 resistance 
Retail (XRT) Also crossed the 50-DMA threshold

Mish Schneider is MarketGauge’s director of trading education and research. Read more of her market analysis here.

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