Due in part to the recent rally by Tesla (NASDAQ: TSLA), the Global X Lithium & Battery Tech ETF (NYSEArca: LIT) is getting a boost. Up almost 9% over the past week, LIT is proving to be one of the best-performing thematic funds this year.

LIT 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.

“Recent comments from China’s minister for industry and information technology that subsidies for electric car purchases would not be cut further this summer, sparking expectations of a rebound in electric car sales this year after sales of electric cars and hybrids fell 4% last year to 1.2M,” notes Seeking Alpha.

Tesla makes for an obvious catalyst for lithium demand and for LIT itself, but there’s more to the story and that’s good news for investors considering the lithium ETF.

Lithium producers are rallying this week, as investors bet on a rebound in electric car sales in China after government assurances its subsidies for buyers would not be cut further,” reports Seeking Alpha, citing the Financial Times.

China looms large in the lithium market. Lithium prices will weigh heavily on China’s demand for the commodity. Currently, market analysts are wary of lessening demand so supply will play a key role in what lithium prices do moving forward.

Leap For LIT

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. Still, lithium miners have faced some struggles.

Currently, electric vehicles represent a small percentage of new automobiles sold around the world and cars on the road, but that percentage is expected to increase in a big way over the next several years.

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.

EV adoptions are likely to accelerate as a result of EVs becoming more economical than gas-powered cars and as a result of pro-climate regulatory changes pushing to ban gas-powered cars.

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.

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