Lithium is an abundant precious metal that forms naturally in a number of different environments. Most commonly, lithium appears in ore which is extracted from underground mines. But it also appears in places like salt deserts, in marine ecosystems, and even in 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 BullishBears.com 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. Ever since technology shifted to the use of Lithium-Ion rechargeable batteries, the metal has been in high demand around the world.
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.
Table of Contents
- How to Invest in Lithium Stocks
- Is there a Lithium ETF?
- Is Lithium a Good Investment?
How to Invest in Lithium Stocks
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 one of 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 being used in cars.
It’s no secret that the world is switching over to electric vehicles. Every automaker in the world has some electric models that are on the way. Not only are consumers wanting to move away from using fossil fuels, but it also aligns with the global initiative to move towards renewable energies and reducing our carbon output.
One thing most people overlook is that electric vehicles are not just consumer vehicles. There are millions of commercial and industrial vehicles that are moving to electrification as well. Just recently, the last-mile delivery truck industry 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 there are so many electric vehicles being produced. Of course, it’s a concern. But the good thing is that Lithium is actually one of the most abundant minerals in the world. It is the 33rd most abundant element that occurs in nature. The problem is not the amount of Lithium, it is extracting it and processing it fast enough to meet demand. Some analysts believe we’ll see a supply crunch of Lithium by 2025. Obviously this is not a good sign for electric vehicle companies, but it’s also a reason why investors are becoming so bullish on Lithium miners and producers.
First of all, the Lithium futures market isn’t very robust yet. There are some brokerages that will allow you to trade futures contracts for the metal but it’s nothing like the futures market for gold or oil. So really you’re just left with equities as the best way to invest in Lithium companies. This isn’t a bad thing of course, 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? Obviously the fundamentals of the company matter. But also how many projects they operate, how many countries they operate in, and who 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 to 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 sixth largest producer of Lithium in the world.
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 the way that 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.
The Best Lithium Stocks
Does this seem silly? Tesla is one company that uses a lot of Lithium throughout the world at its various GigaFactories. CEO Elon Musk has also joked that Tesla might just end up starting its own 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 to invest in.
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 largest supplier of Lithium for electric vehicle batteries in the world. 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.
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 both the Lithium carbonates and Lithium hydroxide industries. It doesn’t just specialize in electric vehicle batteries though. SQM’s Lithium goes to a number of different industries like cements 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%.
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 a number of major partners including LG, Volkswagen, General Motors, Fiat, Stellantis, and Porsche. Despite being a much smaller company than most of the others on this list, Bank of America recently recognized Sigma as a 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.
Is there a Lithium ETF?
If you’re having a hard time choosing which Lithium stocks to buy, then 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.
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. Included in the LIT ETF are stocks like Albemarle, Chinese Lithium giant Ganfeng, LG, Panasonic, and BYD.
Horizons Global Lithium Producers Index ETF (TSE:HLIT)
Horizons is a Canadian ETF provider and this fund trades on the Toronto Stock Exchange. It is Canada’s first Lithium dedicated ETF and holds stocks like SQM, Albemarle, Ganfeng, and Livent.
Is Lithium a Good Investment?
With the way 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 all of these stocks will rise dramatically as well. My favorite way of approaching this market? I’m going with the basket approach and looking at those two Lithium ETFs. It provides exposure to all of those companies I mentioned which includes a lot of international stocks. Depending on your brokerage, you might not have access to those markets without going through an ETF. I hope this taught you guys a bit about the Lithium industry and why it might deserve some consideration for your portfolio!