BATT Commentary Q2 2024
The Amplify Lithium & Battery Technology ETF (BATT) declined -6.4% for the quarter, while the Solactive Global Lithium Index delivered -13.7%.
The bear market for battery metals continues, along with other clean energy-related segments, in an environment that is generally oversupplied and constrained by higher interest rates. Battery metals prices have been in decline, with nickel, lithium, and cobalt prices down from their peak cycle highs. However, there are some positive signs on the horizon, including the recent rise in copper prices.
Macro-level headwinds like high interest rates, increased competition, and consumer hesitation are battering the EV industry. In particular, the lack of EV affordability, exacerbated by higher interest rates, is curbing widespread adoption and slowing EV penetration rates. Past projections of 30% penetration by 2030 now appear overly optimistic. Only 3% of EVs in the U.S. are priced at less than $37,000, according to the research, compared with more than half of gas-powered or hybrid vehicles.
According to Bank of America 1 , EV manufacturers are unlikely to achieve ICE-vehicle parity until 2028. As a result, they expect penetration to grow at a slower pace until 2027 and then begin to accelerate. Further boosting the investment case are new longer range EV models on the way and the charging infrastructure to support it.
The current downturn could provide a buying opportunity for EV-related themes, especially if interest rates start coming down by the end of the year. Interestingly, German automaker VW just doubled down on its EV bet, investing $5 billion in EV maker Rivian. It joins Amazon and Ford Motor Company as large investors in the company.
BATT's top contributors to performance were BYD (+17.0%), Enovix (+93.0%).2 Click here for BATT's top 10 holdings.
China EV maker BYD continues to report impressive sales numbers, challenging Tesla in the race to sell the most all-electric cars. With a series of low-priced vehicles, it is gaining market share and challenging higher-priced competition 3 . BYD’s cheapest EV, the Seagull Honor Edition, starts at just $9,700 (69,800 yuan) in China. BYD has also launched hybrids with 1,300 mile driving ranges. For context, that is basically the distance between New York and Miami.
Shares of leading consumer electronics battery manufacturer Enovix, rose not an EV news but due to a deal to provide silicon batteries and packs for a mixed reality headset. The partnership is presumed to be with Meta. Enovix's foray into the mixed reality space comes as the augmented reality (AR) and virtual reality (VR) market is projected 4 to reach a total addressable market (TAM) of approximately $350 million by 2028. The company also produces advanced batteries for smartphone customers which drove a first quarter earnings beat.
Detractors from performance included Li Auto (-41.0%), Nikola (-73.8%), and SolarEdge Technologies (-64.4%).
While shares of EV startup Li Auto were down on competition from BYD, that trend reversed in June. Strong sales numbers provided evidence that the China EV market is still growing in the lower-priced market. Li Auto delivered 47,774 vehicles in June, up 46.7% vs. a year earlier, brining Q2 deliveries to 108,581, up 25.5% vs. a year prior and just over 35% higher than Q1's 80,400. Li Auto had guided Q2 deliveries of 105,000 to 110,000 electric vehicles. However, the Mega minivan, Li Auto's first all-electric model, continues to experience sluggish sales.
Shares of EV maker Nikola announced a reverse stock-split of 1 for 30 to comply with NASAQ listing rules and avoid delisting. Nikola has been working to grow a customer base for its hydrogen-fueled electric trucks. The company, in fact, announced a large order for the electric vehicles (EVs) last month, but the reverse stock-split news sent shares tumbling.
SolarEdge stock tumbled after a large customer, PM&M Electric, filed for bankruptcy. The company also warned that it expects that it burned $150 million in free cash in the current quarter and that it is selling $300 million in convertible notes.
High interest rates are derailing the ambitions of climate regulators and automakers, but that cycle may be coming to an end, creating huge opportunities for investment in the EV supply chain.
Click here to see performance table.
All data as of 6/30/2024. Subject to change at any time. Fund holdings should not be considered recommendations to buy or sell any security. View Current Complete Holdings
Index Definitions:
The Solactive Global Lithium Index tracks the performance of the largest and most liquid listed companies active in exploration and/or mining of Lithium or the production of Lithium batteries. The index is calculated as a total return index in USD and adjusted semi-annually.
1https://www.utilitydive.com/news/US-electric-vehicle-EV-adoption-slowdown-BOA-Bloomberg/719826/
2All percentages shown indicate total return of the sector for the month.
3 https://electrek.co/2024/06/06/catl-dominates-ev-battery-market-but-byd-gains-ground/
4 https://www.investing.com/news/company-news/enovix-shares-hold-steady-after-mixed-reality-headset-deal-93CH-3497920
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