Ask the Right Questions About Electric Vehicle Adoption

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With oil prices plummeting, it’s reasonable to expect that some advisors and investors are pondering whether slumping crude bodes ill for electric vehicle adoption and ETFs such as the ARK Autonomous Technology & Robotics ETF (NYSEARCA: ARKQ).

Known in part for being one of the ETFs with the largest weights to Tesla (NASDAQ: TSLA), ARKQ captures the converging industrial and technology sectors, capitalizing from autonomous vehicles, robotics, 3D printing, and energy storage technologies. That wide mandate helps lever the ARK fund too much more than just self-driving cars, an important trait at a time of rapid robotics advancements.

With a 13% weight to Tesla, ARKQ is indeed levered to the electric vehicle trend, but investors may not need to fret over lower oil prices affecting the ARK fund. In fact, that question may miss the market altogether.

“While investors are asking if electric vehicle (EV) sales will fall now that gas prices have dropped so dramatically, ARK believes that the question misses the mark,” said ARK analyst Sam Korus in a recent note. “It assumes that auto buyers make their decisions based on the total cost of ownership (TCO) which, if true, would suggest that EV sales should be much higher than they are today.”

Why ARKQ Still Matters

TCO is relevant across myriad products, including ETFs themselves, and it’s vital when it comes to vehicle ownership, regardless of how the vehicle is powered.

Disruptive technology is not relegated to certain sectors as it will permeate into all industries in some form or fashion. For example, augmented reality is technology comprised of digital images superimposed over the real world, and its use is primed to drive industry growth–industries like real estate and manufacturing are already putting the technology to use in a variety of ways.

Regarding TCO, a couple of Tesla’s marquee products compare favorably with popular, gas-powered models.

“According to ARK’s research, over a three-year period the Long-Range Tesla Model 3 is already less expensive to own than a Toyota Camry, and the low-end Model 3 less expensive than a Ford Focus,” writes Korus. “The TCO is much more sensitive to a vehicle’s residual value than to gas prices. In our view, the right question is how low the prices of used gas-powered cars will go as the market transitions first to electric vehicles, and then to autonomous electric vehicles.”

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