By Justin Spittler, editor, Casey Daily Dispatch
China just triggered an explosive rally.
It began two weeks ago when the Chinese government made a historic decision. In short, it announced that it wants to ban the production of gas-powered vehicles.
Instead, it wants to supercharge its electric vehicle (EV) market. The government hopes these “cleaner” vehicles will help fix China’s pollution problem and make its cities more livable.
Many EV stocks jumped on the news:
BYD, China’s electric car market leader, shot up 8% last Monday.
BYDBAIC, another Chinese electric car company, rose nearly 3%.
Even Tesla, the largest U.S. electric carmaker, rallied on the announcement. It ended last Monday up 6%.
These are big moves. But there’s an even more explosive rally that China triggered last week.
Very few people are talking about this. But these companies could turn out to be an even better way to profit from the EV revolution.
• I’m talking about lithium stocks…
These companies mine and sell lithium, an alkali metal that’s critical to the EV market.
You see, EVs don’t use the same batteries as traditional vehicles. Instead, they run on lithium batteries that, you guessed it, contain lithium.
That’s why lithium stocks soared when this story broke out of China.
You can see what I mean below. This chart shows the performance of the Global X Lithium & Battery Tech ETF (LIT) this year. This ETF invests in 27 companies in the lithium market.
You can see that LIT jumped 5.1% last Monday, and has been on a tear ever since.
It’s now up 58% on the year. And it’s trading at the highest price since 2011.
But don’t worry if you haven’t invested in lithium yet.
• The electric car revolution has just begun…
You see, EVs still make up just 0.2% of the global auto market today.
By 2020, Bloomberg says they'll make up 2% of the global market. That means the industry's about to grow tenfold over the next few years. And that’s just the beginning.
By 2030, EVs will account for 24% of the global market.
But, for this to happen, Bloomberg says the production of EVs will rise 30-fold by 2030.
That means a lot more lithium batteries. In fact, market research firm TechSci expects the market for lithium batteries to grow nearly 17% per year over the next four years.
• And that’s obviously going to require a lot more lithium…
Thankfully, lithium is abundant. There’s plenty of it in the earth’s crust.
The problem is that there aren’t enough existing lithium mines to meet this coming demand surge. This means the industry is going to have to build more mines faster than it thought.
That’s not the only reason to be worried about the lithium supply, either.
It also takes a long time to turn raw lithium into lithium batteries.
In fact, it can take up to three years to turn hard rock lithium into batteries. And it takes seven years to do the same thing with brine, another kind of lithium.
In other words, the supply of lithium could be extremely tight even if production ramps up.
• I’m not the only analyst who thinks this, either…
British consulting company Roskill thinks the lithium market could have a 26,000-tonne shortfall by 2025. Roskill has been a leader in international metals and minerals research since starting as one of the UK’s first management consultancies in 1930.
Jennison Associates—one of the leading active equity and fixed-income managers in the U.S.—thinks the lithium deficit could swell to 200,000 tonnes by 2025. Jennison manages more than $164 billion, and is a large investor in lithium.
Citigroup is also concerned about a coming supply crunch.
That’s why it just raised its price target for lithium. The U.S. banking giant now expects lithium to hit $14,000 per ton next year. That’s 24% higher than its previous target.
• Investors haven’t been this worried about the lithium supply since 2015…
Back then, fears of a shortage caused the price of lithium to more than triple in just 10 months.
Now, I’m not saying the same thing is about to happen right now. But lithium stocks will skyrocket if anything close to that happens.
So, you might want to consider speculating on lithium stocks. The easiest way to do this is to buy LIT instead of individual lithium stocks.
Again, that’s because LIT invests in more than two dozen lithium companies. It’s a diversified and relatively safe way to bet on higher lithium prices.
Just remember that LIT’s been on a tear lately. So wait for a pullback before pulling the trigger.
September 19, 2017
P.S. Lithium isn’t the only metal that should soar during the EV revolution. Demand for copper is about to shoot through the roof. To learn why, check out this recent Dispatch essay. It tells you everything you need to know about the coming copper boom. And it names one stock poised to surge because of this.