The Global X Lithium & Battery Tech ETF (NYSEArca: LIT), which tracks the full lithium cycle from mining and refining through battery production, is tumbling this year after ranking as one 2017’s best-performing non-leveraged ETFs, but long-term lithium demand trends remain supportive.
For example, Tesla (NasdaqGS: TSLA) reached a three-year supply deal with lithium producer Kidman Resources, which will start when the Australian company begins producing battery-grade material. The producer is not expected to begin generating lithium compounds until 2021.
“Wider hybrid and electric vehicle (EV) adoption should support demand for cobalt and lithium,” Fitch Ratings and CRU say. “However, CRU expects demand for cobalt to be lower than many market participants’ expectations from 2025 onwards due to the faster adoption of lower cobalt-intensive types of batteries.”
The Importance Of Electric Vehicles
Electric vehicles are in the early innings of development and there are signs that there is a lot of pent up demand among consumers whom want to embrace the technology. In 2017, electric vehicle sales represented 1.7% of all vehicle sales globally, exceeding 1 million for the first time and rising 51% year-over-year. The rate could continue to accelerate as a result of EVs becoming more economical than gas-powered cars and as a result of a pro-climate regulatory changes pushing to ban gas-powered cars.
Several ETFs, including the newly minted Global X Autonomous & Electric Vehicles ETF (NasdaqGM: DRIV), offer investors exposure to the booming electric vehicle investment theme. Electric vehicles are integral to the lithium demand equation.
“EVs will add 50% to overall demand for cobalt between 2017 and 2025, according to CRU’s base case,” said Fitch. “Many market commentators expect demand for cobalt to exceed its supply due to battery growth. However, the faster adoption of lower cobalt-intensive lithium-manganese-cobalt-oxide (NMC, in particular NMC532, NMC622 and NMC811) and lithium-nickel cobalt-aluminium-oxide (NCA) batteries could temper cobalt demand growth from 2025 onwards. CRU’s forecast is lower than ranges expected by some market analysts, who predict manifold cobalt demand increases.”
Given the policies in place today, China and Europe will be among the biggest adopters of EVs. In China, credits and subsidies could help EVs grow to over a quarter of the car market by 2030. In the mean time, tightening emissions standards and high fuel taxes across Europe could make EVs account for 23% of the market.
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