How to Invest in Lithium Stocks

How to Invest in Lithium Stocks

8 min read

Are you looking for how to invest in Lithium stocks? Lithium is an abundant precious metal that forms naturally in several different environments. Lithium most commonly appears in ore, which is extracted from underground mines. But it also appears in places like salt deserts, marine ecosystems, and plant life. It is a soft, silver alkali metal that is the least dense metal on Earth. It is highly flammable and combustible and must be stored in a vacuum. On the elemental table, Lithium is listed under the atomic symbol Li. 

Okay, so this isn’t high school chemistry class. Why are we talking about Lithium on the investing blog? If you’ve been paying attention to the electric vehicle markets, you’ll know exactly why investors are interested in adding exposure to Lithium in their portfolios. Since technology shifted to the use of Lithium-Ion rechargeable batteries, the metal has been in high demand worldwide. 

While precious metal investors continue to look at things like gold and silver, Lithium is quietly becoming one of the most valuable commodities in the world. Should you add Lithium to your portfolio? This article will discuss different ways to invest in Lithium and why you should be bullish or bearish on the industry for the future.

Chart by TradingView

Without Lithium, there wouldn’t be many electric vehicles on the roads today. There’s a reason why companies like Tesla value Lithium so highly. Lithium is the preferred material in electric vehicle batteries. They are the most efficient and have the highest energy-per-unit mass ratings out of any metal. It also has a high power-to-weight ratio, which means that it packs a punch and is also light, which is ideal for car use. 

It’s no secret that the world is switching over to electric vehicles. Every automaker in the world has some electric models on the way. Not only do dodo consumers want to avoid using fossil fuels, but it also aligns with the global initiative to move towards renewable energies and reduce our carbon output. 

One thing most people overlook is that electric vehicles are not just consumer vehicles. Millions of commercial and industrial vehicles are moving to electrification as well. The last-mile delivery truck industry recently moved to electric through companies like Rivian and Canoo. 

You might now be wondering if the world will ever run out of Lithium now that so many electric vehicles are being produced. Of course, it’s a concern. But the good thing is that Lithium is one of the world’s most abundant minerals. It is the 33rd most abundant element that occurs in nature. The problem is not the amount of lithium; it is extracting and processing it fast enough to meet demand. Some analysts believe we’ll see a supply crunch of Lithium by 2025. This is not a good sign for electric vehicle companies, but it’s also why investors are becoming so bullish on Lithium miners and producers.

How to Invest in Lithium Stocks

Futures - Lithium Stocks

First of all, the Lithium futures market isn’t very robust yet. Some brokerages will allow you to trade futures contracts for metals, but it’s nothing like the futures market for gold or oil. So, you’re left with equities as the best way to invest in Lithium companies. This isn’t bad, but it will take some research into some of the best lithium stocks if you want to add exposure to your account. 

Lithium stocks are primarily miners and producers of the metal. So, what things do you need to know about when looking at Lithium mining stocks? The fundamentals of the company matter. But also how many projects they have, how many countries they operate in, and what their business-to-business partners are. Also, since Lithium is a commodity, you’ll need to know that the stock price will trade in sympathy with the underlying price of Lithium.

Which Countries Produce the Most Lithium?

There are a few leaders in the Lithium market—most notably, Latin American countries like Chile, which currently has the largest reserve of Lithium in the world. Argentina and Mexico are also up there, but so are resource-rich countries like Canada, Australia, and China. The United States is currently the world’s sixth-largest producer of Lithium. 

Another region that is gaining ground in the Lithium industry is Africa. As of 2022, the continent now has three of the top ten producers of Lithium in Mali, Zimbabwe, and the Democratic Republic of Congo. 

Unlike other commodities, there is a great disparity in how each country produces its Lithium. For example, of the top ten countries, Chile and Argentina source their Lithium from brine. This is essentially extracting Lithium from mineral-rich ocean water. Meanwhile, Australia, Canada, and Africa extract it from ore from mining expeditions. Finally, the US and China use both methods to produce Lithium. 

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Best Lithium Stocks

1. Tesla (NASDAQ:TSLA)

Does this seem silly? Tesla is one company that uses a lot of Lithium worldwide at its various GigaFactories. CEO Elon Musk has also joked that Tesla might start its Lithium mining subsidiary to battle rising costs. In 2021, it was revealed that Tesla uses more Lithium for its production than the next four largest automakers combined. Tesla could very well be the largest Lithium consumer in the world. It is a direct play on the future of the Lithium industry and the electric vehicle sector. If you’re bullish on both, then Tesla is an excellent stock. 

2. Albemarle Corporation (NYSE:ALB)

Albemarle is a North Carolina-based company that was founded in 1994. It is technically a specialty chemicals manufacturer that operates in three distinct markets: Lithium, Bromine, and Catalysts. Its Lithium share accounts for nearly half of its business. As of 2020, Albemarle was the world’s largest supplier of Lithium for electric vehicle batteries. Albemarle already provides Lithium to Tesla as well as several other major automakers. On top of its high-end partners, Albemarle also increased its quarterly dividend for the 28th consecutive year in 2022. 

3. Sociedad Quimica y Minera de Chile (NYSE:SQM)

SQM is the world’s largest Lithium producer and operates in several different industrial chemicals. The company is a global leader in the Lithium carbonates and Lithium hydroxide industries. It doesn’t just specialize in electric vehicle batteries, though. SQM’s lithium goes to several industries, such as cement and adhesives, ceramics, metallurgy, glass, and dyes. SQM is a solid investment and provides exposure to the Latin American market. It also pays a generous annualized dividend yield of about 3.32%. 

4. Sigma Lithium Corp (NASDAQ:SGML)

Sigma Lithium is a Vancouver-based large-scale producer of battery-grade Lithium. It has most of its operations in Brazil at the Grota do Cirilo Project. Sigma has several major partners, including LG, Volkswagen, General Motors, Fiat, Stellantis, and Porsche. Despite being a much smaller company than most others on this list, Bank of America recently recognized Sigma as one of the Top 50 stocks for Times of Scarcity. With plenty of Grade A partnerships, Sigma is a Lithium stock to watch over the next few years. 

Lithium ETFs

If you’re having difficulty choosing which Lithium stocks to buy, why not go with a basket approach? ETFs are an excellent way to gain exposure to entire sectors where it is difficult to pinpoint one market leader. 

1. Global X Lithium and Battery Tech ETF (NYSEARCA:LIT)

This ETF trades on the NYSEARCA exchange. It has a MER of 0.75% with about $4.5 billion in assets under management. The LIT ETF includes stocks like Albemarle, Chinese Lithium giant Ganfeng, LG, Panasonic, and BYD. 

2. Horizons Global Lithium Producers Index ETF (TSE:HLIT)

Horizons is a Canadian ETF provider, and this fund trades on the Toronto Stock Exchange. Canada’s first Lithium dedicated ETF holds stocks like SQM, Albemarle, Ganfeng, and Livent. 

Final Thoughts: How to Invest in Lithium Stocks

With how things are going, Lithium could see a major price surge within the next decade. Why is this? Experts are already anticipating a supply shortage within the next few years. As more automakers join in on electric vehicles, the global demand is set to skyrocket. Luckily for investors, this likely means that the price of these stocks will also rise dramatically. My favorite way of approaching this market? I’m going with the basket approach and looking at those two Lithium ETFs. It exposes all the companies I mentioned, including many international stocks. Depending on your brokerage, you might not have access to those markets without going through an ETF. I hope this taught you a bit about the Lithium industry and why it might deserve some consideration for your portfolio! 

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