Lithium has multiple applications from consumer to military. But investors should be wary of lithium’s delicate supply and demand levels before diving into this stock.
What is Lithium?
Lithium is a chemical element on the periodic table. This metal is soft and white, giving it the nickname “white petroleum.” While lithium has been traditionally used in ceramic and glass production, it’s now more popularly used in rechargeable batteries in smartphones, laptops and electric cars.
Lithium also strengthens other metals. For example, lithium alloys, such as aluminum-lithium, are used in bicycle frames and aircrafts. And in the pharmaceutical industry, lithium is used to balance neurotransmitters in the brain to treat bipolar disorder.
Chile, Australia and Argentina are the three largest lithium producers in the world, according to a 2020 US Geological Survey.
Ways to invest in lithium
There are two main ways to invest in lithium: lithium producers and companies that rely on lithium as a raw material.
Companies that produce lithium can either mine hard rock or harvest lithium-brine deposits. Mining removes lithium from a mineral using a drill, while harvesting brine deposits extracts lithium that has dissolved in groundwater through evaporation. The brine technique takes approximately 18 months, which is slower than traditional mining.
On the other hand, companies that use lithium generally focus on lithium-ion batteries and devices. For example, electric vehicles rely on lithium as the basis for its green technology. So price fluctuations and changes in the lithium market can directly affect company stocks that use lithium as a raw material.
Why invest in lithium stocks?
The world is progressively more technology-driven. Rechargeable lithium-ion (Li-ion) batteries have multiple applications — from consumer smartphones and laptops to military voice and data radios. Lithium plays an essential role across mobile technologies, with the demand for lithium-ion batteries set to triple by 2025, according to S&P Global.
And as the global market for electric vehicles grows, the annual lithium demand for batteries is expected to skyrocket. According to Global EV Outlook’s technology report from June 2020, the global electric vehicle stock is set to grow by 36% every year, totaling 245 million vehicles by 2030 — or 30 times more than in 2020.
Risks of investing in lithium
Although the demand for lithium is soaring, lithium stocks have been drowning in a surge of new lithium producers from Chile, Argentina and Australia. When supply grows faster than the demand, it can trigger a sharp price drop and cause stocks to become undervalued.
Lithium-ion batteries also require cobalt to produce. Unfortunately, two-thirds of the world’s cobalt is mined in the Democratic Republic of Congo, making its supply susceptible to political instability. And since global cobalt mine supplies are also at risk to disappear in 2020, there may not be enough cobalt to manufacture these batteries.
And it doesn’t help that there’s no benchmark price for lithium. So investors can only base the value of the industry on a handful of companies. You’re flying blind without a full sense of the global market, leaving investors and banks struggling to manage risk.
What ETFs track the lithium category?
You can invest in lithium stocks by purchasing shares of a specialty chemical company that produces lithium or a business that uses lithium technology.
Some exchange traded funds (ETFs) follow the full lithium cycle from mining through battery production, while others specialize in the battery industry.
Global X Lithium & Battery Tech ETF (LIT)
First Trust Nasdaq Clean Edge Smart Green Energy ETF (QCLN)
Amplify Advanced Battery Metals and Materials ETF (BATT)
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Bottom line
We can find lithium products in our everyday lives. The increasing demand for lithium-ion batteries in mobile devices and electric vehicles keeps this stock on investors’ radars.
But to invest in lithium, you’ll need a brokerage account. Weigh a few trading platforms to find a brokerage firm that best fits your investing needs.
Frequently asked questions
Albemarle (ALB) is considered the largest lithium supplier and miner in the world.
Unlike most metals, there is no traded price for lithium. Many companies sell their lithium on long-term contracts.
Although the supply for lithium either exceeds or matches the demand in recent years, lithium is a comparatively rare element because you can only find it in low concentrations, according to the Handbook of Lithium and National Calcium.
Kimberly Ellis is a personal finance writer at Finder, specializing in banking and financial literacy. After teaching in public and private schools, Kimberly zeroed in on personal financial education to help families and kids develop lifelong money skills. She hails from New York City, graduating summa cum laude from Queens College with a BA in elementary education and mathematics, as well as a New York State teaching certificate. She’s also an aspiring polyglot, always in a book and forever on the hunt for the perfect classic red lipstick.
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