Inflation Reduction Act a ‘rising tide for the entire electric vehicle industry’: Analyst

BlackRock’s Jay Jacobs joins Yahoo Finance Live to discuss the Inflation Reduction Act, investor sentiment, clean energy, EV growth, and the outlook for solar and wind.

Video transcript

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- Welcome back to "Yahoo Finance Live." This morning, everyone, the Inflation Reduction Act is set to be signed into law by President Biden in the coming days. Opening major opportunities for investors in the clean energy space. For more insights on this, we have here with us today Jay Jacobs, BlackRock US Head of Thematic and Active Equity ETFs. Jay, always a pleasure to speak with you and get some of your insights. First and foremost here, when we think about valuations and what people should realistically price in and anticipate in terms of what the Inflation Reduction Act will mean for equity companies, what should we expect?

- Well, we've seen a history of investors under-appreciating or underestimating the impact of these disruptive themes. So if we rewind to 2017, Bloomberg's new energy finance forecasted that by 2021 there would be about 2.9 million electric vehicles sold. The actual number in 2021 was 6.6 million. So we have a history of underestimating the power of these disruptive themes.

Now that we have $370 billion coming from the Inflation Reduction Act, we expect that to continue to accelerate the growth of electric vehicles and really help companies along the value chain from car manufacturers to battery manufacturers to lithium suppliers to parts all involved in electric vehicles to benefit from this bill.

- Hey, Jay, it's Julie here. How much will they benefit? Because there are some, particularly the electric vehicle space, there are some rules around this, right? It's not just any electric vehicle that's going to be eligible for this, they have to be assembled in North America, they have to be under, what is it? $55,000 or $80,000 if they're trucks and SUVs. So it's not as though this is like willy-nilly for any electric vehicle. So do people have to be a little bit selective in terms of what they're looking at here?

- Yeah. So this policy is really designed to achieve two things. One is how do we build out an electric vehicle industry within the United States. From the manufacturing perspective to the upstream manufacturing perspective of getting lithium and battery materials ready. And then the second aspect is how do we make electric vehicles more affordable and turn them into mass market vehicles.

Right now, the average selling price of an electric vehicle is about 22% higher than your average car sale in the United States. So, clearly, it's more of a luxury item today, but the idea of providing these tax incentives of up to $7,500 for EVs manufactured in the United States is to turn them into the mass market vehicle. Don't have EVs compete with sports cars, have them compete with everyday cars that are driven for hundreds of thousands of miles at very inexpensive prices. So I think that's really the shift that we're going to see with this bill being passed.

- Well, Jay, I think the Tesla can easily beat a Lamborghini. We've seen those videos on YouTube. But, look, if you want to invest in this space, is there an easier way to do it than doing your homework, per se, on individual stocks?

- Yeah, absolutely. I mean, at iShares, we're big advocates for ETF investing. We, of course, have an ETF iDrive, IDRV investing in the entire value chain of electric and autonomous vehicles. So this is hard for investors to understand the companies beyond the headline names, who are the parts manufacturers, who are the battery manufacturers, who are technology companies innovating in autonomous vehicles. This is difficult research. And also, a lot of these companies aren't just in the United States. They can be in partner countries, they can be overseas in emerging markets, in Asia, in Europe, and being able to access all of those companies in one trade through the efficiency of an ETF we think is a huge benefit to investors.

- OK. So that's one of the beneficiary thematic plays that's out there, but who gets the goose egg here?

- Well, I think it's really going to be felt across the entire value chain. I mean, this is the birth of a new industry. This is a revolution in transportation. It's not going to be one winner, we think there's going to be many winners in this space and it's going to expand beyond just passenger vehicles. We're going to get into trucks, we're going to get into alternative forms of transport.

So as we see this theme continue to accelerate with this bill helping it, as well as falling prices, as well as greater consumer adoption, as well as greater infrastructure buildout, we believe we're going to see a really rising tide for the entire electric vehicle industry.

- And Jay, as you alluded to I think at the beginning of the conversation, it's not just electric vehicles, of course, it's renewables more broadly. And, in fact, we're going to talk to the CEO of Plug Power a little bit later in the show. So do you think that people should just kind of buy the whole "green," quote, unquote, or renewable industry right now?

- Well, we think there are specific themes that are going to win. So we've, of course, talked about electric vehicles, but clean energy we think is a beneficiary as well. We've seen a lot of interest in our iClean ETF, ICON, which is looking at the entire global clean energy value chain as well because a lot of the Inflation Reduction Act is also focused on providing production tax credits for companies to manufacture things like solar panels and wind turbines in the United States, as well as utilities companies to implement those technologies and produce electricity using solar and wind, as well as hydrogen and other forms of clean energy. So there are many facets to this bill, but EVs and clean energy, we think, are going to be the two main winners based off of where the dollars are being allocated.

- Jay Jacobs, BlackRock US Head of Thematic and Active Equity ETFs. Good to see you as always, have a great week.