Usually, lithium is one of those commodities you don't hear much about. It doesn't trade on a futures exchange like other metals and the demand for it is relatively modest. It doesn't have the importance of industrial heavyweights like copper and aluminum, or the cachet of gold.
But that's changing quickly. The silver-white metal is suddenly the hottest commodity of the year, with prices trading near all-time highs on fears that supply won't be able to keep up with demand in the coming decade as the production of electric vehicles surges.
The sole lithium exchange-traded fund on the market, the $530 million Global X Lithium & Battery Tech ETF (LIT), is up 58.1% year-to-date and one of the fastest-growing ETFs, with inflows of $305 million so far this year.
YTD Return For LIT
It's easy to see why investors are suddenly so eager to jump on the lithium bandwagon. Demand is expected to skyrocket in the next several years as car manufacturers ramp up the production of electric vehicles. Lithium is a key component of lithium ion batteries, such as those used in electric cars like the Tesla Model S and the Tesla Model 3.
Data from Bloomberg New Energy Finance shows that annual global electric vehicle sales may increase from less than 1 million units this year to 24.4 million units in 2030.
Analysts at Morgan Stanley estimate electric vehicles will account for 9.4% of new vehicle sales in 2025 and 81% of new vehicle sales in 2050, up from 1.1% this year.
Push Toward EVs
The push toward electric cars comes even as oil prices trade at a fraction of their peak levels. Concerns about the climate are pushing individuals and governments to move toward electric vehicles over their fossil-fuel-burning counterparts despite the higher current price tag.
This year, Britain and France pledged to ban the sale of all gasoline and diesel-fueled vehicles by 2040, while Norway has an even more ambitious target of ending sales by 2025. Earlier this month, even China hinted it is considering a similar phasing-out of the internal combustion engine.
"We have reached an inflection point in electric vehicle adoption that can completely change the equation for lithium demand," said Jay Jacobs, director of research for Global X Management Company.
"Tesla’s Gigafactory in Nevada will reportedly produce more lithium-ion batteries annually than were produced in total in 2013, and will be the largest factory on the planet. The sense of scale occurring here is enormous, and is being driven by significant anticipated demand," he added.
A single electric vehicle can require as much as 10,000x as much lithium as the average smartphone, which had previously been a significant force for lithium demand, Jacobs noted: "There’s also another source of growing demand from renewable energy storage, which we are just scratching the surface of right now."