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How Tesla is Driving the Lithium ETF Higher

Neena Mishra

Tesla (TSLA) is on a tear -- up more than 75% this year. And, lithium metal and the lithium ETF are enjoying the Tesla effect as mass production of lithium ion batteries at Tesla’s Gigafactory picks up.

What is Lithium?

Lithium is the world’s lightest metal. The silvery-white metal is also called “white petroleum”. The metal is one of the hottest commodities in the world since it has double the energy density of the next closest alternative.

Unlike some other popular metals, lithium doesn’t have a spot market and it does not trade on futures exchanges. Most trades are over the counter, between buyers and sellers.

Why Lithium Demand is Rising?

While there is abundant supply of lithium in the earth’s crust, its extraction is costly and time consuming.

Due to high-density energy storage, it is used in rechargeable batteries for electric cars, smartphones, laptops and other electronic devices.

Goldman Sachs, who called lithium “the new gasoline” says its demand could triple by 2025, thanks mainly to rising demand from electric-car and smartphone and applications.

Tesla Impact on Lithium

Tesla plans to produce 500,000 cars per year by 2018 and one million by 2020. One Tesla Model S battery is reported to contain more lithium than 10,000 smartphones. Last year Elon Musk said that in order to produce half a million cars a year, they would basically need to absorb the entire world’s lithium-ion production.

Tesla also aims to become the world’s largest lithium-ion battery producer. The production of these batteries at their Gigafactory has already started and is expected to reach full capacity by 2018.

Tesla is the most high-profile consumer of lithium but demand for the metal is rising from other electric car makers too. And, the demand in China is surging, where the government is using these batteries for electric buses and other vehicles.

Global X Lithium & Battery Tech ETF (LIT)

The ETF provides an easy way to access to a broad basket of companies involved in lithium mining, refining, and battery production.

The fund has an expense ratio of 76 bps, which is much higher than the broader tech ETFs but in-line with similar niche, thematic ETFs.

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