What Growing Lithium Demand Means For ETFs
The electric vehicle industry is propping up interest in the rare metal.
Elon Musk recently touted the development of lithium refining capabilities essential to electric vehicle technology, comparing the opportunity to “basically printing money.”
“The mining is relatively easy; the refining is much harder,” Musk said during an Tesla Inc. earnings call last week. “You can’t lose; it’s a license to print money.”
Tesla has been one of the driving forces in the development and adoption of EV technology in the U.S.
Its competitors aren’t far behind: Ford Motor Co. just signed a five-year deal to source lithium for its EVs from a Nevada mine. And other EV rivals have also been looking to secure their lithium supply chains in response to growing global demand.
Regardless of how bullish investors may feel about the EV takeover, there are several exchange-traded funds that offer investors exposure to the accelerating trends of battery technology and lithium production as an essential component of the ongoing electric vehicle revolution.
Global X Lithium & Battery Tech ETF (LIT)
The Global X Lithium & Battery Tech ETF (LIT), which is the largest lithium and battery tech ETF, provides investors with exposure to China (31.10%) and the U.S. (20.05%). LIT, which tracks the Solactive Global Lithium Index, has $4.44 billion in assets under management and is made up of 20-40 companies that “must have significant revenues generated or expected to be generated” from lithium mining or lithium battery production, according to the issuer. China being the third largest consumer and the third biggest lithium producer along with many U.S. carmakers with EV ambitions also looking to join the lithium rush.
Despite lackluster recent performance, the ETF returned 43.31% over the past three years, according to data compiled by ETF.com.
Amplify Lithium & Battery Technology ETF (BATT)
For investors looking for more direct exposure to EV companies like Tesla, Rivian Automotive, NIO Inc. or Lucid Group Inc., BATT is another option.
With $183.7 million in AUM, it tracks the EQM Lithium & Battery Technology Index and has Tesla as its second biggest holding (6.52%).
Although BATT is down 18.39% so far this year, it returned 10.47% over the past three years, according to ETF.com.
VanEck Rare Earth/Strategic Metals ETF (REMX)
The VanEck Rare Earth/Strategic Metals ETF, which has $752 million in assets , gives investors exposure to 20 international companies that mine, refine or recycle rare earth or strategic metals, specializing in small, micro caps and emerging market issuers, according to ETF.com.
Its performance has also been uneven: REMX has lost 21.95% so far this year, returning 29.35% over the past three years.
This ETF offers significant exposure (36.75%) to Australia, the largest lithium producer in the world. Canada-based Lithium Americas Corp. (4.66%) and Chinese manufacturer Ganfeng Lithium Co., Ltd. (4.88%) are among its top 10 holdings.
The EV Revolution
While some analysts and investors believe that rising demand for lithium will inevitably lift lithium stocks along with the world’s growing need for rechargeable batteries for EVs, as well as mobile phones, laptops and other consumer devices, not everyone is convinced.
Recent research from Goldman Sachs Group Inc. forecasted that a potential bull market in battery metals won’t take place until at least 2024.
“Despite this exponential demand profile, we see the battery metals bull market as over for now,” according to Goldman analysts, projecting that lithium prices will decline at the fastest pace over 2023. “That fundamental mispricing has, in turn, generated an outsized supply response well ahead of the demand trend.”
Still, even the skeptics see supply eventually catching up with demand, resulting in a “super cycle” in coming years and projecting lithium supply to grow an average of 33% year between 2022 and 2025.
Contact Daria Solovieva at [email protected]
