Buy this ETF for exposure to the booming electric vehicle market, NDR Research says

Published Sun, May 29 20227:24 AM EDT

For investors looking to capitalize on the jump in electric vehicle ownership, one exchange-traded fund that tracks lithium and battery companies fits the bill, according to Ned Davis Research. The firm favors the Global X Lithium & Battery Tech ETF , which offers broad exposure to companies involved in the mining and processing of lithium, as well as companies that make batteries for car companies. Ned Davis said that surging gas prices makes owning an EV more compelling, which should drive higher sales in the future. The national average for a gallon of regular gas hit a record $4.60 last week, up from $3.041 one year ago. "A key assumption to the EV vs. ICE analysis is that gas prices stay at this elevated level for a five-year period, and we have reason to believe prices could remain elevated for some time," the firm wrote in a note to clients. EV sales more than doubled during 2021 to 6.6 million vehicles, according to data from the International Energy Agency. Electric vehicles now make up almost 9% of global car sales, which is nearly triple 2019's share. Ned Davis said that lithium and batteries are the firm's preferred way to gain exposure to the electric vehicle theme, since they focus on the all-important component of an EV. "While we do not know which region or car maker will gain the most share, we do know that all EVs require a battery," the firm's analysts led by Pat Tschosik said. While the fund is higher for May, it's still down more than 10% for 2022 amid a broad market sell-off. Tschosik said the ETF recently saw its worst five-day outflow since November, leading him to believe that capitulation could be here. The fund's top holdings are Albemarle , SQM , BYD , Yunnan Energy and Eve Energy. Lithium prices have more than doubled this year after surging in 2021, but the companies that mine the metal haven't seen the same type of outperformance. But that could be changing. Albemarle and Livent are among the companies that said they are re-negotiating contracts, which will give them more exposure to high spot prices. The former raised its guidance on Monday evening, saying it now expects 2022 net sales to total between $5.8 billion and $6.2 billion. This is the second time in one month that the company's hiked its forecast. Earlier in May, Albemarle said it expected sales to be between $5.2 billion and $5.6 billion, up from the prior guidance of $4.2 billion to $4.5 billion. Of course, lithium prices that are too high could impact EV demand at a certain point. Automakers will ultimately pass these higher costs to consumers, which could impact the number of vehicles sold.