A few months ago, a Chicago financial advisor told a client something that most of his colleagues would never say aloud. He recommended that the client forego the electric vehicle ETF that they had been considering for almost a year. He claimed that the ETF no longer represented what the client truly desired to own, not because the industry was collapsing. The peculiar situation that EV-focused funds find themselves in in 2026 is captured by that brief moment, which is repeated in innumerable offices.
Electric cars are not the issue. New EV sales reached multi-month highs in March, used EV sales are expanding quickly, and as gas prices rise above pre-conflict levels, Google search interest in terms like “EV deals” and “hybrid sales” has reached all-time highs. The S&P Kensho Electric Vehicles Index has increased by 66% in the last year and more than 13% so far this year. The EV story is vibrant by nearly every narrative metric. So why are so many investors feeling let down by the ETFs’ tracking of it?
What these funds actually contain holds part of the answer. When you look at the holdings list of a typical EV ETF, you’ll see Tesla next to a German semiconductor company, a Chinese battery manufacturer, an Australian lithium miner, and a faltering American startup like Lucid or Rivian. The pitch is a wide net. Wide nets, however, catch everything, even items you’d prefer not to have. Even though the rest of the EV industry didn’t necessarily follow when Tesla shares fell more than 20% earlier in 2025, the ETFs still took the hit. Theoretically, diversification should lessen shocks. It has also been smoothing out the upside in practice.
Some portfolio managers feel that EV ETFs were created for an era that has passed, when the industry as a whole moved in unison because investors thought it would. That conviction has broken. While facing tariffs overseas, Chinese EVs are gaining market share domestically. Nikola and Lucid battle the threat of delisting and share prices that are almost at all-time lows. Tesla reduces its workforce and lowers its prices. Nowadays, every company is a unique story with its own balance sheet concerns, and grouping them together into a single ticker can be likened to putting together a band where each member performs a different song.
It’s difficult to ignore how similar this is to previous ETF setbacks. Cannabis funds delivered years of drawdowns while promising exposure to a generational shift. ETFs for cloud computing combined winners and losers until it was impossible to ignore the difference between the two. The EV ETF feels like it’s heading somewhere similar, caught between the romance of a theme and the messy reality of execution.
Cost dynamics are improving, infrastructure is expanding, and the global charger count has doubled since 2022, according to the IEA. According to reports, Tesla is working on a more compact and reasonably priced model. Hybrids, once dismissed by purists, are quietly outselling pure EVs in several markets. All of which points to a sector that’s maturing in uneven ways, rewarding stock pickers more than basket buyers.
Watching this unfold, you start to understand why some seasoned investors have begun building their own concentrated EV portfolios, three or four names they actually believe in, instead of paying an expense ratio for a fund that owns everything indiscriminately. ETFs as a category are not being rejected. It’s a tacit admission that thematic investing is only effective when the theme exhibits theme-like behavior.
It’s unclear if EV ETFs will adjust by sharpening their focus, adjusting their weighting based on profitability, or ultimately separating the leaders from the laggards. As of right now, there is a growing disconnect between the sector’s promise and the products that follow it. And it appears that contemporary investors, who are more astute than those who followed the initial EV craze, have taken notice.
