The iShares Self-Driving/EV And Tech ETF (IDRV) is a way investors can participate in rapidly growing electric vehicle industry while not placing too big a bet on Tesla (NASDAQ:TSLA). Despite TSLA's recent pull-back from $1,750 to Friday's close of $1,415 (~20%), some investors - including myself - feel the stock has gotten way ahead of itself and is significantly overvalued. That said, it's hard to argue with Tesla's success in brand marketing, the China manufacturing plant, battery technology, and its potential to leverage its technology base into the home and industrial solar power and battery storage sectors. The point is: any long-term investment in the EV market obviously must include exposure to Tesla.

The IDRV ETF appears to be just such an investment. The list of the top-10 holdings is shown below:

Source: iShares.com

As can be seen, IDRV has a 6.5% position in Tesla. I've been waiting for Tesla to pull-back before buying shares in IDRV. The prospect that Tesla will be added to the S&P 500 after achieving four straight quarters of positive net-income appears to be fully baked into the stock in my opinion. In addition, I am concerned Tesla may soon take advantage of its high flying stock to announce a common stock offering to finance the recently announced manufacturing facility to be built in Austin, TX.

Combined with the big drop in Intel (INTC) Friday (together INTC and TSLA equate to ~10% of IDRV's entire portfolio), it appears to be a good time initiate a position. Note IDRV was down -1.7% Friday.

I also find this ETF's diversified investment approach to the EV market very attractive. As one can see from the top-10 holdings above (which equate to roughly 45% of the entire portfolio), IDRV holds positions in key technology companies that will provide electronic chips and components to EVs (Nvidia (NVDA), Siemans (SIE), Schneider Electric, Qualcomm (QCOM) and Samsung) in addition to investments in software and mobile oriented companies like Apple (NASDAQ:AAPL) and Alphabet (GOOGL).

It is important to note that many of these technology companies will also benefit from the roll-out of 5G communications, which - in my opinion - is fully synergistic with the EV and self-driving markets.

Following my desire to allocate more capital outside of the US (see Newmont: How To Profit From The Potential End Of "King Dollar"), I like IDRV's exposure to foreign markets. While US investments are just over 50% of the portfolio, there is attractive exposure to Germany (14.3%), Japan (11%), and South Korea (8.8%). While the German economy is expected to shrink by 6.5% this year, Reuters reports that Europe's economy is likely to recover faster than that of the U.S. due to "starkly difference responses to the coronavirus."

I would have liked to have seen more direct exposure to Chinese companies in the fund (only 1.2%), but one could argue most of the companies in IDRV's portfolio are either directly or indirectly affected by China's fast growing EV market.

Like most of iShares ETFs, the expense ratio is reasonable at 0.47%. And despite the market turmoil this year, IDRV is up a respectable 8.9% YTD. The yield (1.26%) may seem inconsequential, but note that is more than 2x the current yield of the 10-year Treasury (0.59%).

Like virtually any investment, there are risks here. First, of course, is the fact that Tesla is the #1 holding and the correction in that arguably over-valued stock could be far from over. That said, Tesla has a 6.5% weighting, and I am comfortable (and like) the exposure to that company.

On the the Q2 conference call, Tesla appeared to be sticking with its guidance for 500,000 cars delivered this year. But Elon Musk it is not a demand issue:

It's really just a production issue. It's been pretty hard when you've got like a global supply chain, and it's kind of whatever the most effective part of supply chain is that sets your rate.

Note the 500K delivery target this year means 320,000 deliveries in the coming two quarters (Q3,Q4), which is obviously quite an acceleration from the ~180,000 units delivered in the first two quarters.

Secondly, many of the holdings are "high flying" tech stocks for which many analysts say are due to come back to Earth. In addition, executives from both Apple and Alphabet - which together compose about 8% of the portfolio - are scheduled to testify in front of Congress regarding anti-competitive practices. This could pose some headline risks, as well as the potential for punitive fines. But I like the growth potential of these companies even in the face of the current global economic contraction due to COVID-19: growth is essential in near zero interest rate environment when real rates are negative.

Third, there is always the possibility that EV market expectations don't measure up to its projected growth rate. According to the IEA, sales of electric cars topped 2.1 million globally in 2019, surpassing 2018 a record year to boost the stock to 7.2 million electric cars.Electric cars, which accounted for 2.6% of global car sales last year, registered a 40% year-over-year increase:

Source: EIA

If COVID-19 effects on the global economy short-circuit the established EV growth rate as shown in the chart above, valuations for EV related stocks could come down accordingly.

Lastly, the IDRV ETF has only been around a little more than a year, so there is no long-term track record to evaluate.

I find the iShares Self-Driving/EV and Tech ETF to be an excellent way to participate in the growing global market for EVs through a diversified approach. But with Tesla still trading at such a tremendously high valuation, I plan to move in slowly by dollar-cost-averaging over the next 12-18 months. I am initiating a starter position now and it my intent to establish a full portfolio allocation by end of 2021.

I'll finish with a chart of IDRV's performance since its inception in April of 2019:

Source: Yahoo Finance

Disclosure: I am/we are long GOOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I intend to open a position in IDRV in the next few trading days.

I am an engineer, not a CFA. The information and data presented in this article were obtained from company documents and/or sources believed to be reliable, but have not been independently verified. Therefore, the author cannot guarantee their accuracy. Please do your own research and contact a qualified investment advisor. I am not responsible for the investment decisions you make.

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Electric Vehicles: An ETF That's More Than Just A Bet On Tesla - Seeking Alpha