Investing in lithium

You might know lithium from the lithium batteries that power electric cars. As the world becomes more electric and dependent on lithium, there are more and more opportunities for investment

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What is lithium?

Lithium is a silver-gray, soft metal and the lightest metal on earth. It even floats on water! Because of this, it can be put into batteries without weighing them down. This is one of the reasons why lithium batteries are popular in the automotive industry.

How is lithium mined?

Lithium is extracted from ore or salt groundwater. It is mined in Australia, and in countries like Chile and Argentina, it is pumped from salt water reservoirs that are deep underground. This water is pumped into large shallow artificial lakes where the sun evaporates the water. Large areas of salt are then left behind from which lithium is extracted.

What is lithium used for?

Lithium is used in the manufacture process of many products. It is processed in glass and ceramics to ensure that these objects can withstand extreme temperatures without breaking. In recent years, the demand for lithium has mainly increased because of its use in batteries. In particular, the demand for electric car batteries has caused the price of lithium to grow significantly.

Advantages and disadvantages of lithium batteries

Lithium batteries are often used in cars and consumer electronics because they have a high energy density and long life. They also contain fewer toxic metals than regular batteries, making lithium batteries less harmful to the environment. Another plus for the environment is that they can be easily recycled.

A major disadvantage of lithium batteries is that they are relatively expensive to produce. They also can catch fire at high temperatures due to overheating. There is even a risk of explosion when a battery catches fire. Fortunately, manufacturers continue to innovate, and new ideas are constantly being implemented to make batteries safer.

What is lithium?

Lithium is a silver-gray, soft metal and the lightest metal on earth. It even floats on water! Because of this, it can be put into batteries without weighing them down. This is one of the reasons why lithium batteries are popular in the automotive industry.

Lithium is extracted from ore or salt groundwater. It is mined in Australia, and in countries like Chile and Argentina, it is pumped from salt water reservoirs that are deep underground. This water is pumped into large shallow artificial lakes where the sun evaporates the water. Large areas of salt are then left behind from which lithium is extracted.

Lithium is used in the manufacture process of many products. It is processed in glass and ceramics to ensure that these objects can withstand extreme temperatures without breaking. In recent years, the demand for lithium has mainly increased because of its use in batteries. In particular, the demand for electric car batteries has caused the price of lithium to grow significantly.

Lithium batteries are often used in cars and consumer electronics because they have a high energy density and long life. They also contain fewer toxic metals than regular batteries, making lithium batteries less harmful to the environment. Another plus for the environment is that they can be easily recycled.

A major disadvantage of lithium batteries is that they are relatively expensive to produce. They also can catch fire at high temperatures due to overheating. There is even a risk of explosion when a battery catches fire. Fortunately, manufacturers continue to innovate, and new ideas are constantly being implemented to make batteries safer.

Reasons to invest in lithium stocks

In the energy transition, there is a lot of focus on electric driving. All of those electric cars being produced need batteries. Each car battery, as you can probably imagine, requires much more lithium than a phone or laptop battery. For example, a 70 kWh battery in the Tesla Model S contains 63 kilograms of lithium. The demand for lithium is expected to continue to grow in the coming years. By investing in lithium-related stocks, you may be able to benefit that increasing demand for this commodity has on its price.

Growth forecast for market share of electric cars

The energy agency International Energy Agency (IEA) expects the number of electric cars sold to increase substantially in the coming years. They base their figures on data from the largest car manufacturers. 18 of the 20 largest car brands say they want to increase production and the number of electric car models available. Some brands, such as Volvo, want to completely and only produce electric vehicles by 2030.

The IEA expects that the number of electric cars sold in 2030 will be over six times higher than in 2022.

The 5 most traded lithium stocks and ETFs

Since investing in lithium is becoming more popular, here are the most traded lithium stocks and ETFs of 2022 via our platform:

Lithium Americas (CA53680Q2071) is a Canada-based company in the lithium business that operates in Argentina and in the US. In Argentina, it has two projects where lithium is mined. In the US, a new project is under construction in the Nevada desert. There, lithium will be extracted on a large scale from an open pit mine. The company says that this facility will generate the largest amount of lithium within the US.

Albemarle (US0126531013) is an American company focused on the production of catalysts, lithium and bromine products. In 2015, the company acquired competitor Rockwood. Thanks to this acquisition, Albemarle has become the largest lithium producer in the world. The company invests heavily in countries such as Australia, China and Chile, where there are many lithium reserves. In Chile, Albemarle is even the only foreign investor with access to these reserves.

Livent (US53814L1089) is a global lithium producer with production facilities in Argentina, China, the US, England and India. Livent's share price plummeted as in 2020 when the Covid-19 pandemic caused the demand for lithium to drop. But the share has since risen sharply again as the economy has recovered. In early 2022, the stock was about 3.5 times higher than at its low point during the pandemic. With a price-to-earnings ratio above 100, investors expect a lot from the company in the future.

Sociedad Quimica y Minera de Chile (US8336351056) is a Chilean company that supplies raw materials to the food, technology and healthcare industries and is one of the largest lithium producers in the world. Partly due to the rising demand for lithium, the company made a substantial increase in profits in 2021 compared to previous years. In addition, the company has good ties with the Chilean government. This can be seen as a great advantage because Chile has by far the largest global lithium reserves.

This last investment product is not a company stock but an exchange-traded fund (ETF) that focuses on the lithium industry. The L&G Value-Chain UCITS ETF (IE00BF0M2Z96) tracks the price of companies that produce lithium and companies that make lithium batteries. By investing in this ETF, you spread your investment among 33 different lithium-related companies. Some of the above companies are also part of the composition of the ETF.

Investing in lithium through DEGIRO

At DEGIRO, there are several ways to invest in lithium. We have a wide range of corporate stocks in the lithium industry. Think of companies that produce the raw material lithium, but also companies that make batteries from lithium. In addition, you can invest in ETFs in which lithium-related companies are included. By doing so, you invest in lithium in a diversified way that helps to spread the risk.

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Investing involves risks. You can lose (a part of) your invested funds. We advise you to only invest in financial products which match your knowledge and experience. This is not investment advice.

Investing involves risks.

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