Lithium as an Investment?
Lithium is the not the most abundant metal used in batteries, but it’s the most important now. Lithium’s global demand is expected to increase dramatically in the coming years. Clearly, investing in lithium itself and in lithium battery stocks—if it hasn’t already become so—will become all the rage. But what exactly is a lithium battery, or more technically a lithium-ion battery (Li-ion)?
Lithium is actually a key material in various types of batteries. The main ones include lithium polymer, lithium iron phosphate, lithium-cobalt, lithium-manganese oxide, and lithium-titanium oxide. You will notice that the common element in all of these is lithium. This is because the key component of these batteries is the electrolyte, which is always made using a lithium salt. What changes is the material used for the cathode. This is why there are so many different types of lithium batteries.
The way a lithium-ion battery works is based on the “migration” of lithium ions that are cyclically extracted from, and introduced into, a host; the electrode during the use and charging phases. Parallel to the migration of the ions is the reduction/oxidation of the host matrix, which causes the external flow of electrons. The various types of cathode used in lithium batteries correspond to different characteristics as needed, depending on the context and use.
Lithium-iron-phosphate batteries, for example, are characterized by high thermal stability; higher compared to any other type of battery, lithium or otherwise. They can be recharged for 2,000-3,000 cycles, maintaining its characteristics unchanged. This is why they are ideal for use in storage systems and the latest generation of photovoltaic panels. As you read this, in a small way, you are already investing in lithium. Check your smartphone; it too has a lithium battery. It happens to be a lithium-cobalt battery, used in most common mobile devices, from laptops to tablets to smartphones. As you might be noticing in your pocket, these batteries tend to heat up easily.
The Search for New Technologies: Investing in Lithium is Key
Ongoing technological research is always looking for improvements in performance. The new direction may go in favor of the lithium-sulfur and lithium-air batteries, which should perform better than any of the types noted above. As for profit, that is how you, the investor, can gain. The first thing to know is that there is great ferment in the demand for lithium. It is one of those metals whose value will increase. Unlike gold or silver, lithium will not go up because of obscure financial models and sovereign risk; it will increase simply because of industrial demand.
Since Tesla Motors Inc (NASDAQ:TSLA) decided to build the largest battery factory in the world, the “Gigafactory,” demand for lithium has shot up. Experts predict double-digit growth in demand for the next few years, while battery prices will start going down because of economies of scale. In this sense, Tesla Motors has become not just an automotive sector stock; it is one of the main new lithium battery stocks.
This growing gap between supply and demand—lithium is not a very abundant metal and it can only be found in ores—opens a whole new market to emerging companies. This is where the new lithium stocks come in. The higher demand will break up the lithium market, which has until recently been verging on a monopoly, given that there are only four major lithium mines worldwide. This concentration has facilitated the huge increase in the cost of lithium, defying the trend for depressed commodity prices.
Some Lithium Stocks to Consider
Even where lithium mining opportunities exist, there are unpredictable challenges that prevent full exploitation. In Chile, a plan to increase production of lithium at the Sociedad Quimica y Minera de Chile (ADR) (NYSE:SQM) is being held back by political problems. Regulations on production quotas are being enforced. Across the Andes, in Argentina, there is FMC Corp (NYSE:FMC), which has to deal with technical production problems.
The only producer that has expanded its production capacity is the “Greenbushes” mine in Australia, which belongs to a joint venture between the Chinese Sichuan Tianqi Lithium Industries Inc. (SHE:002466) and Albemarle Corporation (NYSE:ALB), which is developing a mine in Nevada as well—the “Silver Peak” mine—to take advantage of the Gigafactory Tesla is building in Nevada. Indeed, Tesla is the catalyst for unprecedented competition in the lithium mining sector.
While FMC, SQM, and ALB represent the more established lithium brands, it is only a matter of time before a host of juniors start popping up in order to pick up lithium profits of their own. In this sense, consider Orocobre Ltd. (TSE:ORL) or Lithium Americas Corp (TSE:LAC).
There will be plenty of demand for everybody, so the rise of new players should not dilute the value of lithium in any way. For example, Tesla’s Gigafactory, whose production of batteries should be at full capacity in 2017, will require some 17,000 tonnes of lithium a year. (Source: “Tesla Will Need A Lot Of Graphite & Lithium (But China Will Need More),” Benchmark Mineral Intelligence, April 7, 2016.)
But Tesla is not the only one making Li-ion batteries; China is the biggest producer. Morever, Mercedes Benz, BMW—not to mention Toyota or Nissan—and everyone else in-between will offer new electric vehicles in late 2016. Therefore, the prospects for lithium stocks are decidedly bullish.
The Bottom Line on Investing in Lithium
So, for the investor who wants to take advantage of opportunities stemming from the lithium market, there are limited options. The only realistic possibility remains, for the moment, those investing in the established players, and after some due diligence, the new emerging players. By clicking here, you will get a better sense of how to begin profiting from lithium. See our latest report: “17 Million Drivers No Longer Pay for Gas?”