The Global X Lithium & Battery Tech ETF (NYSEArca: LIT) is up almost 8% this year, a performance that while solid, could also be indicating that investors are not fully appreciating the stout fundamentals underpinning the global lithium market.
LIT, which is nearly nine years old, tracks the Solactive Global Lithium Index. One of the oldest thematic ETFs, LIT is designed to provide exposure to “the full lithium cycle, from mining and refining the metal, through battery production,” according to Global X.
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.
“Battery metals tracker Adamas Intelligence says that in February 2019, 76% more lithium carbonate equivalent (LCE) was deployed worldwide in batteries of new electric, plug-in hybrid and hybrid electric passenger vehicles compared to the same month last year,” reports Mining.com. “The Dutch-Canadian research company, which tracks EV registrations and battery chemistries in more than 80 countries, says among all metals and materials found in EV battery cathodes, lithium use saw the greatest gains.”
What’s Next for Lithium?
An important driver of lithium demand in the years ahead is the expectation that full electric and plug-in vehicles will continue stealing market share from hybrid rivals.
“Full electric and plug-in hybrid vehicles are also taking market share from traditional hybrid vehicles, meaning that a greater share of kWh deployed this year was in the form of Li-ion cells, as opposed to NiMH cells, which contain no lithium, according to Adamas,” reports Mining.com.
Bolstering the long-term case for LIT is that 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.
“China’s automakers association predicts sales of electric cars in China will reach a record 1.6 million units this year – up from 1.2 million in 2018 – representing around half of global sales,” according to Mining.com. “Bloomberg reports there are now 486 EV manufacturers registered in China – more than three times the number two years ago.”
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