A Barron’s article from late July discussed how all three big American automakers’ stocks got crushed after reporting Q2 2024 results. That immediately got me thinking about the First Trust S-Network Future Vehicles & Tech ETF (NASDAQ:CARZ), which owns all the leading automakers, including Detroit’s Big Three. The CARZ ETF is down over 7% in 2024, with all the damage done in the August swoon. 

Part of the problem is slowing U.S. EV sales. Up 46% in 2023, they only increased by 3% in the first quarter and 11% in the second quarter of 2024. Investors are likely wondering which way they’re headed in the second half of the year. A strong showing could help put some wind in the sails of auto stocks everywhere. 

Despite all the concerns about the state of the EV market, the automotive industry is doing reasonably well overall. The tough part for most CEOs running these companies is effectively balancing the transition, and that issue isn’t going away. 

Here are three reasons to buy CARZ ETF on the latest dip. 

Actual Auto Makers Are a Small Component

CARZ changed its name from the First Trust NASDAQ Global Auto Index Fund in January 2022 after changing the index it tracks. Formerly, it tracked the NASDAQ Global Auto Index. It now tracks the S-Network Electric & Future Vehicle Ecosystem Index.

The fund’s summary prospectus states that it invests in four segments:

“(1) electric and autonomous vehicle manufacturing; (2) electric and autonomous vehicle enabling technologies (i.e., companies that manufacture batteries for energy storage, provide the sensors for autonomous driving capabilities and manufacture semiconductors); (3) electric and autonomous vehicle enabling materials (i.e., companies that mine rare earth metals used for energy storage and conversion); and (4) the development and manufacture of future automotive technology and products.”

CARZ has 101 holdings. Of those, approximately 20 are automakers, accounting for 18.3% of the fund’s $30.7 million net assets, with only Tesla (NASDAQ:TSLA) in the top 10. The remaining 81 holdings and 81.7% weighting are auto-related businesses.

So, diversification helps avoid some, but not all, big drops like we’ve seen in August.

The Top 10 Do Much More Than Automotive

The top 10 holdings account for 43.5% of the total net assets — and five of those are Magnificent Seven stocks. Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) account for 5.03%, 4.76% and 4.70% of the overall ETF, respectively. Tesla, the only automaker in the top 10, is the fourth-largest holding, at 4.52%. The other Magnificent Seven stock in the top 10 is Nvidia (NASDAQ:NVDA) at 4.31%. 

The Magnificent Seven accounts for nearly 54% of the top 10 holdings, so you’re really getting a Magnificent Seven ETF in disguise. If you’re not interested in the auto sector, you could invest some of your funds in the Roundhill Magnificent Seven ETF (NASDAQ:MAGS). That ETF charges 0.29%, 41 basis points less than CARZ. 

Over the past month, both CARZ and MAGS have lost more than 15%. If you were considering investing $5,000 in CARZ, you might do $3,500 instead, putting $1,500 into MAGS to save a little on the fees. 

The Auto Sector Will Rebound

CARZ has existed for over 13 years, with the majority of the duration tracking the NASDAQ Global Auto Index. This index is entirely made up of 34 automakers. 

In November 2021, CARZ traded as high as $67. There is no reason it can’t revisit its all-time high once growth in the North American EV market speeds up. Further, it doesn’t hurt to have most of the Magnificent Seven riding shotgun with traditional auto-related suppliers such as Borg Warner (NYSE:BGA) and Lear (NYSE:LEA).

Although Detroit automakers have slowed their EV ambitions, the global market for new energy vehicles is expected to account for nearly half of all vehicles produced by 2030, thanks to the demand for plug-in hybrids. Meanwhile, the production of ICE (internal combustion engines) vehicles is projected to drop below 40% by 2030. 

That’s less than seven years away.  

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor held LONG positions in NVDA and GOOG.