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Investing in Lithium [2023] – EV Commodity Trade

Last updated on 14 de March de 2023

The future of the automotive sector is in electric vehicles. But this transition will require plenty of commodities. We will speak about investing in Lithium, one of the key resources for EVs.


What is Lithium

Lithium is a chemical element of the periodic table, whose symbol is Li. It is a very soft metal, silverish in color and oxidizes very fast. It is the lightest metal and solid element of all.

We can find lithium in two different forms: lithium carbonate and lithium hydroxide. Both are relevant to the electric car industry.

Lithium was discovered as a chemical element in 1817 by Swedish scientist Johan Arwedson. And, although it has gained in popularity in the most recent years, lithium has had multiple applications throughout its history.

The popularity of lithium increased significantly in the second half of the 20th century. This was due to discoveries related to nuclear energy. For both civilian and military applications, lithium began to be used in nuclear-type infrastructures.

Nowadays, lithium is an element that can be found mostly in batteries. When mobile phones went mainstream in the 1990s, global consumption of lithium increased dramatically.

Later on, the widespread adoption of smart phones, as well laptops and tablets, pushed lithium consumption even further. And, in the last few years, the advent of electric cars has made lithium one of the most important metals of our age.

Lithium and the Electric Car Industry

Unlike cars with internal combustion engines, electric cars use batteries to store energy.

There are several types of electric batteries. The most important elements to produce them are lithium, graphite, cobalt, nickel, manganese and aluminum.

The most popular type is the lithium-ion battery. This is not exclusive to electric cars, as we can also find these types of batteries in our mobile phones. This is the type used by Tesla to manufacture its cars.

It is clear by now that the automobile industry is moving toward producing mostly electric cars. This transition will not be immediate or easy. Internal combustion engines will be with us for a long time.

However, most growth will come from electric vehicles. And this growth will impact the entire sector, not only Tesla.

Traditional car manufacturers, such as Volkswagen, Toyota, Ford, Mercedes, and even Porsche, are pouring huge amounts of money into developing technologies that will be used in their electric cars.

As investors, there are two ways we can profit from this trend. On the one hand, we can invest in car manufacturing companies, and try to pick the ones that should have the brightest future.

On the other hand, we can also put our money into companies and things that will benefit from that growth, such as lithium production.

Such investments can offer much higher returns, as they are not on the radar of most investors. As a result, it is essential to know how we go about investing in lithium.

As an anecdote, remember what happened during the gold rush that took place in America in the 19th century. Those who made the most money were not the people looking for gold, but those who sold the tools necessary to look for gold.

In this sense, the best way to profit from the growth of the electric car industry may be to invest in lithium producing companies.

Where is Lithium Produced

The main lithium producing countries are Australia, Chile, China, and Argentina. As a result, most lithium comes from relatively stable countries. This is in contrast with the supply of cobalt, which is highly dependent on the unstable People’s Republic of Congo.

According to the American organization USGS, these were the top lithium producing countries in 2020:

Data from USGS

The following table shows the level of lithium reserves that have been found in different countries:

Data from USGS

Even though Chile and Australia seem to dominate, remember that the amount of reserves available can change at any time as new deposits are found. Exploration activities will ensure that is the case.

How to Invest in Lithium

Unlike other commodities, such as gold, oil or copper, lithium is not traded in the form of financial futures on the world’s major exchanges. That makes it harder to trade if we just want to benefit from the movement in the metal’s price.

Consequently, the best option for retail investors to invest in lithium is through lithium producing companies. There are two ways we can do that:

Lithium Producing Companies

One way to invest in lithium is to buy shares of companies in the sector. The safer companies will be those that are in the business of mining and selling lithium.

This allows us to benefit from the activities that are being carried out today and in the future. If demand for lithium increases in the years to come, both production volumes and prices are likely to increase.

This can lead to a massive growth in the profitability of lithium producing companies.

Some of the most important companies in the lithium sector, in which any retail investor can invest, are the Australian Galaxy Resources, the North American Livent Corporation, and the Chilean Sociedad Química y Minera de Chile.

If you decide to invest in individual lithium stocks, remember that mining companies tend to be very heterogeneous, even though they all sell the same product. This is because their deposits will be of different sizes and located in different countries, they will have different production costs, etc.

An even riskier way to invest in lithium is to buy shares of companies that are dedicated exclusively to the exploration of new deposits. With these types of investments, the probability of losing money is very high. But the gains can be astronomical if large deposits are found.

Lithium ETF

The other way we have to invest in lithium is also the simplest. It is the best option for those who are bullish on lithium but do not want to analyze individual mining companies.

A great way to trade the future growth of lithium demand is by investing in a lithium ETF. A lithium ETF is composed of various companies in the lithium mining sector.

One of the most important lithium ETFs is the Global X Lithium & Battery Tech ETF. But other options are also available.

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And if you want to learn about other commodity investments, check out this section:

Published in Commodities

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