Is the buzz over electric vehicles worthwhile for investors looking to get in on the ground floor of the emerging technology?
As with all industries in their infancy, there are risks and rewards.
The world is on deathwatch for gasoline vehicles. Increasingly, governments are approving regulations that would faze out the use of gasoline-powered vehicles. Norway wants to stop the sale of fossil-fueled vehicles by 2025. France and India want to nix gasoline engines in new cars by 2040 and 2030, respectively according to Global X Funds. It's likely that governments around the world will jump on the bandwagon.
[See: The 10 Best Ways to Buy Tech Stocks.]
That's all well and good, but who profits from the change in the industry?
"It is about digging into each company and finding out how they will benefit from the changes in materials use," says Chris Terry, a metals & mining research analyst at Deutsche Bank Securities in New York.
Not all companies in the automotive sector are set to profit equally. For instance, a manufacturer of windshield wipers probably won't see any difference, because electric vehicles need no more or fewer wipers than other cars. Likewise, tire makers and manufacturers of headlamps and seats might not see a boost to demand.
Even car manufacturers aren't a certain bet. Companies that make gasoline and diesel vehicles can make electric ones instead.
"For electric vehicles, the underlying technologies are not uniquely proprietary," says Ken Fisher, executive chairman and co-chief investment officer at Fisher Investments.
But what if there was an area where new competitors might be delayed or slowed down?
Fortunately, there is such a group, those companies that produce the key raw material that is used to make electric batteries.
Game-changing technology. Growing demand is on the way for one key raw material in particular. The game-changing technology for electric vehicles has been the lithium-ion battery, and it is there that there are some big bucks to be made. Global X claims that some electric vehicles use in excess of 10,000 times more lithium than a smartphone -- meaning that 1 million electric cars would use the same amount of lithium as every smartphone ever sold.
There are about 17 million cars and light trucks sold or leased annually in the U.S., so the opportunity for investors of lithium-ion batteries is enormous.
[Read: How to Invest in the Car of the Future.]
Better still, there are reasons to believe that the portion of electric vehicles will steadily grow.
"We are looking at getting close to 30 percent of new vehicles by 2030 in the U.S.," says Luke Tonachel, director of clean vehicles and fuels at the Natural Resources Defense Council in New York.