Like other riskier assets, the Global X Lithium & Battery Tech ETF (NYSEArca: LIT) is scuffling this year, but the original lithium ETF offers investors a significant rebound potential; potential grounded in solid fundamentals.
LIT, which is nearly nine years old, tracks the Solactive Global Lithium Index. The underlying index is designed to measure broad-based equity market performance of global companies involved in the lithium industry. As a thematic ETF, LIT has a growth feel, but some of its growth components are now offering attractive value.
“Lithium prices have plummeted over 50% since their early 2018 high as new supply has rushed into the market. The shares of Albemarle (ALB), SQM (SQM), and Livent (LTHM) now trade well below our fair value estimates as they price at lower-for-longer lithium prices,” writes Morningstar analyst Seth Goldstein.
The coronavirus pandemic is likely to weigh on lithium prices for the rest of 2020, but LIT could be a major bounce-back play next year.
“However, we see a light at the end of the tunnel. By the end of 2021, the lithium market will return to balance as demand growth resumes from increased electric vehicle adoption and other batteries and eats up new supply,” according to Goldstein.
Loving LIT Now
Investors that embrace LIT in the near-term or next year could be in a long run of upside if demand forecasts prove accurate, particularly if the electric vehicle boom continues.
“The 2020s will be a transformational decade for lithium, as we expect demand to grow over 6 times 2019 levels,” notes Goldstein. “Additional higher-cost supply will be needed to meet this demand. While there may be further price volatility in the near term, we forecast long-term prices will settle at a marginal all-in sustaining cost of $12,000 per metric ton, as high-quality lithium needed in EV batteries grows to account for 80% of total demand.”
Global automotive industry observers believe electric vehicles will reach comparable price points to traditional internal combustion engine vehicles sometime in the next several years, making it more compelling for drivers to make the switch to electric vehicles.
“Lithium is in the early phases of a once-in-a-century demand transformation. We expect an increasing need for high-quality lithium used in electric vehicles and grid storage will result in demand growing over 6 times from 2019 to 2030,” according to Goldstein.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.