The world is transitioning away from the internal combustion engine and toward electric vehicles. The auto market is saturated with established EV companies like Tesla (NASDAQ: TSLA), EV startups such as Rivian (NASDAQ: RIVN), Lucid Group (NASDAQ: LCID), and legacy automakers such as Ford (NYSE: F) and General Motors (NYSE: GM) making the shift. As the world undergoes this massive change, the power grids of every nation are going to require updating and upgrading to handle the increased demand for electricity. When grids in states like California and Texas cannot handle extra air conditioners running in the summer, are these grids really going to be able to support millions of cars that will suddenly need to plug-in and charge up? Fortunately for investors, there are a multitude of ways to play this macro trend.
First of all, there is an ETF for those that do not want to try and pick winners in the space, the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (NASDAQ: GRID). To be included in the ETF, stocks must be classified as smart grid-related by Clean Edge, have a market cap of at least $100 million, and have a daily trading volume of $500,000. Currently, the fund has a 78 stock makeup and the top five holdings are Eaton (NYSE: ETN), ABB Ltd (ABBN.SW), Aptiv PLC (NYSE: APTV), Schneider Electric SE (SU.FP), and Johnson Controls International plc (NYSE: JCI). The expense ratio is currently 0.63%, so investors are paying less than one percent for First Trust to do the picking and choosing for them, which may be attractive to many.
For those who like to choose their stocks, there is no shortage of options. A good place to start is to look for power grid operators. The electric utilities that build and maintain the grids are the backbone that supports the entire EV industry at its core. Some options worth a look in this area are NextEra Energy (NYSE: NEE) and Xcel Energy (NASDAQ: XEL). NextEra owns two electric utilities in Florida, one of the fastest growing states in the U.S. as well as being the world’s largest provider of solar and wind energy. Xcel owns more than 20,000 miles of power lines spread across ten states and plans to invest more than $24 billion in the next three years to expand its operations. Both stocks also pay a dividend of more than 2% so investors receive a blend of growth and income.
Investors seeking a picks and shovels path can look at companies that build the power infrastructure components for the utility companies such as Quanta Services (NYSE: PWR). Quanta is a construction contractor that designs, builds, and maintains the infrastructure that comprises the power grid such as substations, transmission facilities, wiring, and renewable power technology components. The company is a market leader in the space and has a market cap of $18.8 billion, and the small dividend of 0.22% gives investors a bit of a kicker on top of a growth-focused company.
The EV revolution is here and now even though the market is still sorting out which automakers will be the big winners. No matter which automaker eventually rises to the top, the power grid will need the necessary repairs and upgrades to account for the new and heightened demand. For investors seeking a different way to capitalize on the growing sector, the power grids that will enable all-electric vehicles to function may be the way to go.
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