If the rise of Tesla Motors (TSLA) has taught us anything over the past year, it is that electric cars have finally overcome broad consumer stigma, and are worth consideration over gas-powered automobiles. Tesla Motors has made a splash with its cool cars, and a number of other, larger car companies have announced vehicles of their own to tap into this quickly growing market as well.
While this trend has obviously been great news for shareholders of TSLA, the movement of the industry could end up being a long term bullish case for the lithium sector as well. That is because lithium ion batteries are at the heart of the electric car revolution, meaning that both producers/miners of the element, as well as those that make and sell the final battery product, could benefit from this trend.
In fact, while electric vehicles accounted for just 6% of total lithium consumption in 2012 at 1.4 million units, the total is expected to rise to 3.8 million units by 2020. Furthermore, the broad ‘automotive’ category of the lithium battery market accounts for roughly 36% of the space today, but is expected to see annualized growth rates of 37% over the next three years, suggesting it will become an increasingly important component of lithium demand (also read 3 Hot Sector ETFs Surging to #1 Ranks).
Add this in to other categories of lithium battery users—such as alternative energy, cell phones, etc.—and it is pretty easy to see why lithium demand may soar in the years ahead. Given this trend, a broad play on the space may be an excellent, and often overlooked, idea for long-term investors. Fortunately, there is one way to target this space from a global perspective, the Global X Lithium ETF (LIT), which we have described in greater detail below:
Lithium ETF in Focus
LIT gives investors exposure to a broad range of firms engaged in the mining of lithium, or the development of lithium batteries. This is done by tracking the Solactive Global Lithium Index, giving access to 16 companies from around the globe.
Top holdings include FMC Corp (FMC) and Rockwood Holdings (ROC), two American firms which combine to make up nearly 36% of assets. Rounding out the top five are some international firms, with Orocobre, Coslight Technology, and Sociedad Quimica y Minera de Chile taking up the spots (see all the materials ETFs).
From a country perspective, the U.S. takes up about 40% of assets, followed by South Korea at 13%, Australia (11%), and Canada (9%). Mid and small cap stocks dominate the portfolio from a cap perspective, while materials stocks lead the way in terms of sectors.
In terms of performance, LIT has had a sluggish 2013 as the ETF has lost a bit over 13% in the YTD time frame. Still, in the past month, it is up over 11% while the three month return is more than 6.6%, suggesting that perception finally might be turning regarding this space.
This product, like many commodity-heavy ones, has struggled for much of 2013, facing some severe losses to open up the year. However, the ETF has come back a bit as of late, producing some decent returns in the process (see all the top ranked ETFs).
The real potential here is in the long term, as lithium ion battery demand is projected to soar in the coming years. Should this come to pass (and given the growth prospects for electric cars it should), investors may have an ETF worth a closer look on their hands with Global X’s LIT.
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Author is long LIT
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- Financial Technical Analysis
- Tesla Motors
- lithium ion batteries