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Lithium ETF: More Than A Tesla Story

ETF Professor

When investors think about lithium-related investments, Elon Musk's Tesla Inc (NASDAQ: TSLA) is usually the first instrument to come to mind, but do not forget about the Global X Lithium ETF (NYSE: LIT).

LIT was an early adopter to the lithium investing movement, having come to market almost seven years ago to the day. As an ETF, LIT will not deliver returns on par with Tesla when that stock is soaring, but LIT also falters less when Tesla tumbles. Year to date, LIT is up 25.5 percent while Tesla is up 54.4 percent, but as shares of the electric auto giant have recently slipped, LIT has been steady.

LIT, home to $262.3 million in assets under management, tracks the Solactive Global Lithium Index. That index is a basket of companies engaged in lithium mining, refining and battery production.

An Evolving Industry

When LIT debuted seven years ago, the lithium demand and investment thesis was largely tied to consumer electronics. Something often overlooked by the pro-environment crowd is that their beloved smart phones and tablets are chock full of minerals that must be mined from the earth, such as lithium.

“In 2010, the case for investing in lithium largely revolved around the growth of consumer electronics, especially smart phones. Superior screens and internet-enabled devices required larger, more powerful batteries and sales of such devices erupted around the world,” according to Global X research.

As the Global X research notes, lithium demand on the consumer side is expected to plateau, but led by Tesla, the electric vehicle boom is expected to keep demand robust.

“Some of the newest electric vehicles use more than 10,000 times more lithium than a smart phone, meaning that 1 million electric cars would use approximately the same amount of lithium as every smart phone ever sold,” said Global X. “This figure could be reached surprisingly quickly. Tesla’s upcoming Model 3, designed for the mass market, already had nearly 400,000 pre-orders as of May 2016 when they last reported the figure.”

Beyond Tesla

LIT is more than an ETF proxy on Tesla. In fact, the ETF really is not that. While Tesla is LIT's fourth-largest holding at a weight of just under 6 percent, that is nothing compared to the more than 24 percent the ETF allocates to FMC Corp (NYSE: FMC). That stock is up 34 percent this year.

There are other important sources of lithium demand beyond cars and electronic devices.

“Renewable energy is not a pipe dream; it’s already well on its way. From 2016 to 2018, solar and wind energy output is expected to grow 25 percent. in US and represent over one-third of all power produced,” according to Global X.

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