Underscoring the credibility of markets’ growing affinity for electric vehicles, the Global X Lithium & Battery Tech ETF (NYSEArca: LIT) is up more than 40% since the start of the second quarter and its run could just be getting started.
LIT 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.
Recently, there’s been ample attention on electric vehicles’ driving range and moves to bring more charging stations to market. Those are important themes, but lithium remains a vital part of the EV ecosystem.
“But for EVs to successfully achieve their full potential, the entire supply chain from lithium mining, to battery production, and car manufacturing, must be carefully calibrated and coordinated to meet rising EV demand,” said Global X analyst Pedro Palandrani in a recent note.
Lithium’s importance in the EV supply chain is in focus because of the accelerating demand for these automobiles. Manufacturers must have access to the critical battery component and that access is more meaningful now than ever with EVs closing the gap on their gas-powered rivals. 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.
“While EV sales have grown substantially over the last few years, analysts expect the real acceleration to occur over the next decade. From 2015 to 2019, annual EV sales rose from 450,000 to approximately 2 million,” according to Palandrani. “Despite these gains, EVs still represent just 2.6% of total car sales, with internal combustion engine (ICE) vehicles still making up the vast majority of the 75 million unit new car market.”
With the popularity of electric vehicles spurring demand for automobile offerings from carmakers like Tesla, the lithium industry has taken a new turn. More uses will be found for lithium as the move to energy dependence from fossil fuels continues to increase demand for efficiency.
Currently, miners don’t want to increase lithium supply because the market is already slightly oversupplied, but this isn’t a long-term hurdle for LIT.
“Miners still have time to prepare to meet the massive demand, but even to double current output by 2025 – delivering less than one-third of 2029’s expected demand – seems ambitious,” notes Palanrani.
For more on thematic ETFs, please visit our Thematic Investing Channel.
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.