The Problem with Lithium

Written by Nick Hodge
Posted July 27, 2016

There are a few problems with lithium, actually — on both the industrial and investment sides.

First and foremost is that not enough of it is being produced. In the next 10 years or so, the world will need some three to five times more lithium than was produced in 2015.

Lithium Supply Demand

The reasons for this are straightforward: the world is using more and bigger things powered by lithium batteries.

There were 1.4 billion smartphones sold last year. 194 million laptops. 320 million tablets.

And lithium powers them all.

But get this...

Electric cars will soon dwarf all of that.

In fact, just the targeted production of Tesla's new Model 3 — 500,000 annually — would consume the world's entire lithium supply.

All of it. None left for Tesla's other models or for any other electric car manufacturers. None left over for phones or the laptop I'm writing this on.

It's one of the reasons Tesla has built a lithium-ion battery “Gigafactory.” It just opened this week, and there's been a bit of fanfare surrounding it.

Gigafactory Lithium Headlines

But Elon Musk will still need to secure the lithium supply to make all the batteries that factory will crank out.

And he'll be vying against many competitors for scant supply, which is already sending lithium prices through the roof.

Lithium Carbonate PriceBecause Mercedes, BMW, Nissan, Honda, and others all need batteries for their electric cars, too.

So does Warren Buffett, who has a multibillion-dollar stake in China's BYD, which also has ambitious battery and electric car plans.

But where will it come from and how can we make money from it?

That's the other problem with lithium.

The lithium market is currently tiny in relation to other commodity markets. Annual sales of lithium in its various forms — pure lithium, carbonates, hydroxides, concentrates, etc. — total around $1 billion.

And 86% of  production comes primarily from four large companies:

  • Albemarle (NYSE: ALB)

  • Chemical & Mining Co. of Chile (NYSE: SQM)

  • FMC Corp (NYSE: FMC)

  • Talison Lithium (a JV by Chengdu Tianqi Industry Group and Albemarle)

None of these are pure plays, leaving investors looking for a way to play this up-and-coming market.

There are several companies in various stages of developing new lithium-producing assets.

Others are simply acquiring land packages many years off from production — if they produce at all — so the rising lithium tide can lift their boats too, which is the same thing that happened in the rare earth run a half decade ago.

Investors made a lot of money in the rare earth boom. They also lost a lot by betting on the wrong companies.

The lithium market today looks just like the rare earth market in its early days.

Many gains will be had in the lithium sector. But there is much risk. Tread carefully.

My brand new lithium report will help you get started.

Call it like you see it,

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Nick Hodge

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Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street's Underground Profits. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.

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