The lithium exchange traded fund has enjoyed rapid success over the years on the rising demand for electric vehicles. However, Morgan Stanley recently dumped a bucket of cold water on lithium bulls.
The Global X Lithium & Battery Tech ETF (NYSEArca: LIT), which tracks the full lithium cycle from mining and refining through battery production, plunged 3.9% Monday.
Lithium-related assets retreated after Morgan Stanley analysts argued that the growth of electric cars will be “insufficient” in offsetting the surge in lithium supply out of Chile, reports Henry Sanderson for the Financial Times.
The analysts project that new lithium projects and planned expansions out of the largest producers in Chile will “threaten to add” 500,000 metric tons per year to the global supply by 2025.
“We expect these supply additions to swamp forecast demand growth,” Morgan Stanley said.
Lithium prices have more than doubled in the past two years on rising demand for battery raw materials used in electric vehicles. For instance, a Tesla Model S incorporates more lithium in its batteries than 10,000 smartphones combined, according to Goldman Sachs.
Looking ahead, Morgan Stanley argues that the current year will mark the end of the global lithium deficit as there will be “significant surpluses” from 2019 onwards.