Invest in Lithium’s Supercycle… Brought to You by the EV Revolution, Energy Storage
Editor’s Note: ETF Strategist Nicholas Vardy is The Oxford Club’s newest addition. Nicholas is widely regarded as one of the world’s top experts on exchange-traded funds (ETFs).
Few asset classes have seen as much explosive growth as ETFs have. Later this spring, Nicholas is launching a product that will allow subscribers to capitalize on this exciting opportunity and grow their wealth exponentially…
Until then, Nicholas has teamed up with Chief Investment Strategist Alexander Green to write for our sister publication Investment U and The Oxford Club’s flagship monthly newsletter, The Oxford Communiqué.
Today, Nicholas shares an essay about the supercycle he believes one critical commodity is now entering. The essay first appeared in Investment U last Friday.
Nicholas shows you why the opportunity in lithium is hard to ignore… and points you to an ETF play on lithium you might want to consider.
If you’re interested in reading Nicholas’ insights more frequently, you can subscribe to Investment U by clicking here.
– Patrick Little, Managing Editor
Just over 200 years ago, Swedish chemist Jacob Berzelius revealed the discovery of a “very strange” new metal.
He named it “lithium.”
Fast-forward to the 21st century…
And thanks to the need for powerful, lightweight, rechargeable batteries…
Every electronic gadget you’ve owned in the past 15 years has contained lithium.
The Electric Vehicle Revolution
With the widespread adoption of smartphones, laptops and tablets, demand for lithium has exploded over the past decade.
In 2016, J.P. Morgan estimated that the market for lithium carbonate was approximately $1 billion.
By 2030, it’s expected to top $50 billion.
That works out to a compound annual growth rate of nearly 30%.
Yet mobile devices aren’t the primary drivers of future demand…
It’s the one-two punch of the electric vehicle (EV) and renewable energy storage.
Morgan Stanley estimates EVs account for approximately 1.1% of global new car sales.
That is expected to jump to 9.4% by 2025 and 81% by 2050.
Bloomberg estimates that annual global EV sales will increase from less than 1 million units this year to more than 24 million units by 2030.
And last September, China announced it was planning a timetable to completely phase out production and sales of fossil fuel cars.
An average EV requires 100 times more lithium carbonate than a laptop does.
No wonder global carmakers from Tesla to Volkswagen to BMW are scrambling to lock in lithium supplies.
Tesla is even in talks to take a stake in the world’s No. 1 lithium producer, Sociedad Química y Minera de Chile (NYSE: SQM).
The Dark Horse… Energy Storage
Few investors ever think of energy storage as a source of demand for lithium. But lithium powers the batteries that store renewable energy generated by solar panels and wind turbines.
With the cost of lithium-ion batteries declining, battery storage is now economically feasible for many energy storage applications.
As a result, the use of wind turbines and solar panels is soaring.
Germany – the world’s fourth-largest economy – generated 31.6% of its electricity from renewables in 2015. (Its goal is to reach more than 80% by 2050.)
As renewable energy expands, so too will the demand for large, lithium-powered storage batteries.
A Solution for Lithium Investing
The price of lithium has almost tripled over the past 36 months.
No wonder investors want to invest in this red-hot asset.
But I see two broad challenges.
First, it’s almost impossible to invest in lithium directly.
You can’t buy lithium futures contracts or swaps on any major commodities exchange.
Second, four significant producers dominate the lithium supply market.
Together, Albemarle Corp. (NYSE: ALB), FMC Corp. (NYSE: FMC), Sociedad Química y Minera, and China’s Tianqi Lithium Corp. accounted for 83% of global supply in 2015.
Unfortunately, by investing in lithium directly, you’re often stuck with tiny, speculative microcap stocks.
Instead, enter my favorite lithium investment vehicle: Global X Lithium & Battery Tech ETF (NYSE: LIT).
This exchange-traded fund (ETF) neither tracks the price of lithium directly nor looks at lithium as a commodity.
Instead, it tracks a market cap-weighted index of global lithium miners and battery producers. And it plays into the EV and renewable energy storage trends.
The ETF holds three of the “big four” lithium producers mentioned above (with the exception of Tianqi Lithium Corp.), which together represent 41% of the fund.
It also invests in large lithium users, including Tesla and Samsung, the No. 1 smartphone maker worldwide.
Morgan Stanley recently forecast that lithium prices may plummet in the near future due to increasing supply from Chile.
Perhaps that’s true in the short term, but I generally disagree…
The fundamental investment case for lithium is robust and long term.
There’s just not enough current supply of lithium to meet demand…
And that demand is exploding much quicker than the supply is.
That makes investing in lithium a winning proposition.
After all, no one can repeal the law of supply and demand.