As Electric Car Makers Ramp Production, Lithium ETF Is Compelling Way To Participate

The electric car market is ramping up, and this means increasing demand for lithium — a key component in car batteries.

One exchange-traded fund is well-positioned in the market to take advantage of lithium. For those looking at the sector for investment opportunities, the Global X Lithium & Battery Tech ETF LIT is a compelling way to participate.

The industry faces a lack of financing and needs to inject more than $12 billion within five years to have a chance of meeting demand, according to Mining.com. 

Tesla TSLA is singlehandedly growing the sluggish electric-car market.

“As long-term demand for electric vehicles likely increases, Global X Lithium & Battery offers a compelling way to participate,” said Todd Rosenbluth, the head of ETF and Mutual Fund Research at CFRA.

“The ETF is relatively concentrated with Albermarle and Quimica both double-digit weightings and the top-10 holdings comprising roughly 60% of assets," he said.

"CFRA finds the stocks inside to be attractively valued and think the ETF trades with a tight bid/ask spread. While the performance has been volatile, we think the fund has favorable attributes." 

Lithium Mining Background 

Daniela Desormeaux, CEO of SignumBOX, an economist and expert in industrial chemicals and natural resources, said she expects a compound annual growth rate for lithium demand of 14 percent during the next 20 years.

UBS estimates lithium demand will increase by about five times by 2025 based on the lithium-ion battery factories that are under construction or built.

“Unlike cobalt or other battery-related minerals, lithium is not necessarily scarce, but projects take time to develop and are often in new jurisdictions for mining - particularly for lithium mining,” Desormeaux said. 

The robust growth of the lithium market will also result in more exploration in new regions, including Zimbabwe; Democratic Republic of the Congo; Serbia, with Rio Tinto’s Jadar project; and Argentina, where a wave of new lithium projects being developed.

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