Lithium is an alkali metal (symbol Li on the periodic table) that manufacturers use in many applications, including glass/ceramic production, metallurgy, and medicine.
But the most well-known usage would have to be lithium batteries, which took up 65% of the global lithium usage in 2020.
Smartphones, tablets, laptops, and now electric cars all rely on lithium-ion batteries to work. If you have ever checked a bag at the airport, you probably heard them warn you about removing your lithium-ion batteries.
This high demand for lithium has rendered it a valuable investment. And although lithium atoms exist all over the world, the pure element itself is unstable and more difficult to find.
And with the growth of specific industries like electric vehicles, you can expect the world’s reliance on lithium to continue growing.
So investing in lithium has the potential to be particularly profitable over the next few years.
And in this article, we will explore everything you need to know so that you can intelligently invest in this valuable metal.
Table of Contents
- Consider Supply vs. Demand
- Electric Vehicle Revolution
- Understand Methods of Lithium Extraction
- Lithium Statistics
- Be Aware of Lithium Substitutes
- How to Invest in Lithium (Steps to Follow)
- 1. Decide on Your Investment Amount
- 2. Consider the Entire Lithium Market
- 3. Consider the Expanding Market
- 4. Diversify Your Investments
- 5. Find Large And Small Lithium Producers
- 6. Research Foreign Markets
- 7. Rely on Companies with Big Market Share
- 8. Invest in Lithium Stocks
Before getting into the specific steps to investing in lithium, it might be helpful to go over some of the preparation you can do ahead of time.
When investing in lithium, preparing via education will always help. Research helps you understand the landscape and makes you more likely to make good decisions.
Consider Supply vs. Demand
When investing in a resource like lithium, it is crucial to understand the relationship between supply and demand. In general, high demand and a limited supply will tend to make your investment increase in value.
But the balance between supply and demand is delicate, and high demand is only positive if the industry can sufficiently meet that need.
And when it comes to investing in lithium, the projected supply and demand situation is predicted to be perfect for driving up profits. There are a limited number of lithium mining operations worldwide, and understanding how the production side of the lithium industry works will help you make intelligent decisions.
While you can expect the number of lithium mining operations to increase, it takes years for that to happen. Companies with a head start will naturally make moves to meet the growing demand.
Even though the global production rose from 40,000 tons in 1995 to 180,000 tons by 2015, there is expected to be a deficit over the next ten years.
This gap between the supply and demand of lithium is called the “Great Divide,” and you can expect it to make the value of lithium-producing companies go higher and higher until that gap closes.
On the demand side of things, it is worth understanding which industries will be the driving force behind the demand for lithium production.
As you probably know already, batteries are the most prolific consumers of the world’s lithium and understanding the lithium battery industry will help you make intelligent investments.
But there are also other industries whose lithium consumption competes with batteries.
Glass and ceramics, lubricants, air treatment, polymer production, and aluminum production are all industries that consume a notable percentage of the world’s lithium.
Understanding the past growth and future projections of these industries will give you a more zoomed-out understanding of the lithium marketplace.
Electric Vehicle Revolution
But today, you can see a Tesla vehicle on the road pretty much anywhere you go. And investors expect the growth of electric cars to continue increasing.
And with the increasing demand for electric cars, the demand for lithium will also increase.
This electric vehicle revolution—the EV Revolution—will, in turn, drive up the demand for the lithium batteries that power them.
As governments and companies find profitable ways to lower CO2 emissions and comply with international agreements like the Paris Agreement, major car manufacturers will become more involved in the electric vehicle industry.
Just how big will this EV Revolution be?
It is hard to answer that for sure, as all investments and projections are risky and open to revision.
But currently, electric vehicles are only one percent of global passenger cars, and that number is expected to become 25% or more within four years.
Keeping an eye on the electric vehicle industry, especially in their development of new and better battery technology, is a key preparation step for investing in lithium.
Understand Methods of Lithium Extraction
While it is by no means necessary to understand the details of various extraction processes, knowing about them might help you decide on which companies will be doing well in the future.
As you already read, industries like the electric vehicle revolution will likely skyrocket the demand for lithium, so knowing which companies will be able to meet that demand is a crucial preparation step.
For example, there is a new method of lithium production called Direct Lithium Extraction (DLE) that is expected to come out over the next few years.
It involves extracting lithium from geothermal brine, and once this technology scales, it will help close the great divide between supply and demand.
New methods like DLE are also crucial for environmental reasons.
While electric vehicles are better for the environment—because they do not burn fossil fuels—they still harm the environment when they rely on mining and extraction processes that harm the environment.
For example, the method of lithium extraction through pond evaporation will likely become obsolete as governments put stricter environmental protections on the lithium industry.
Understanding which companies have adopted the newest and cleanest lithium extraction methods will also help you make smart investments.
Companies that value clean processes will have long-term potential for growth.
Having a background in lithium statistics is a great way to prepare for investing. It will give you confidence in how much the demand for lithium will likely grow and in which markets you can expect that growth to happen.
Some of the most notable statistics in the Lithium industry, from Gunther Martin’s lithium market research, include:
- The USGS estimates 14 million tons of lithium reserves (enough for 435 years)
- Lithium recycling is said to replace 25% of the supply by 2050
- Between 1995 and 2015, lithium production jumped from 40,000 tons to over 180,000 tons.
- Unsaturated markets in countries like India and China for cordless electronics will likely raise lithium demand by 12% alone.
Statistics are also relevant for finding opportunities that other less researched investors are not thinking about.
While lithium batteries—and all of the associated technology and industries—are the biggest consumer of lithium, other lithium-using markets are easy to overlook. These markets include glass and ceramic production, lubricants, polymer production, and aluminum production.
Be Aware of Lithium Substitutes
The current demand for lithium, mainly in industries that use lithium batteries, is already orders of magnitude larger than in the 1990s.
And with the expected electric vehicle revolution coming over the next ten years, it seems safe to say that the demand for lithium will continue to outpace the supply. This gap means that your investment has a high chance of growing over the next ten years.
But in any technological industry like electronics and batteries, you should be aware of the cutting edge of technology and how new technology can potentially disrupt an industry that is currently booming.
For example, calcium, magnesium, mercury, and zinc are all possible substitute elements for the anodes in certain battery types. And the other main industry that uses lithium—glass and ceramics—can substitute sodic and potassic fluxes in their production.
So it is worth knowing about these possible substitutions, especially if demand radically outgrows the capacity of lithium mining companies to provide sufficient supply.
But this is not to say that lithium will be replaced anytime soon—as of now the potential substitutes that could replace lithium’s role in batteries are not yet viable because they do not work as efficiently as lithium. And even if such an option came to be, it would take years for it to proliferate enough to affect the lithium industry.
See Related: How to Start Investing With Purpose
How to Invest in Lithium (Steps to Follow)
Investing in anything can be a complicated process if you want to do it right. The preparation steps above will give you a solid background into understanding the lithium industry and how you can expect the supply and demand relationship to change over time.
But many people find it easier to work through a step-by-step process for making a smart investment, especially when it is an industry as open and growing as lithium.
So let’s work through the main steps for investing in lithium.
1. Decide on Your Investment Amount
No matter what industry you are investing in, there are no guarantees. Not only will you likely see the value of your investment move up and down, but you also run the risk of losing most of your money if you get unlucky.
That is why a good first step in any investing situation is to set aside the amount of money you will invest ahead of time.
How do you know how much money you should invest?
The short answer is that it should never be more than you are willing to lose.
If you cannot afford to invest, then you should not do it. You have to be willing to calmly watch your investment grow and shrink without overreacting to short-term changes.
And if you lose your investment, no matter how unlucky it is, you will be okay if it was money you were already willing to lose.
2. Consider the Entire Lithium Market
When you are investing in lithium, you do not have to limit yourself to the metal itself or only focus on one specific aspect of its production.
Lithium has a huge infrastructure behind it, and you should consider investing in all aspects of this infrastructure. As the demand for lithium increases over the next ten years—fueled in particular by the EV Revolution—you can expect investments in all aspects of lithium to perform well.
Considering the infrastructure of lithium production means that you can invest in everything from mining companies to battery companies to the major car manufacturers that are expected to ramp up their electric vehicle production over the next ten years.
You can also invest in technology companies that will hopefully be investing cleaner and more efficient techniques for lithium mining and extraction.
Or, knowing ahead of time that you expect the lithium industry to grow so much, you can invest in infrastructure and companies adjacent to this industry.
One such example would be ChargePoint, a company that makes charging stations for electric vehicles.
Thinking big like this and evaluating the entirety of the lithium industry will bring new and exciting possibilities to your general interest in getting in on the lithium industry.
3. Consider the Expanding Market
As you know by now, the lithium industry has such an optimistic projection because of the expected growth of the battery industry, especially as it relates to electric vehicles. While it is unlikely that a new industry will suddenly take over EVs, new industries or young industries may become giant markets.
Besides the more obvious battery markets of smartphones, tablets, and wearables, there are also new products that take advantage of the power of lithium-ion batteries. For example, electric scooters are now planted all over many major US cities to give people a quiet and easy way to get around.
Power tools, personal care items (trimmers and toothbrushes, etc), and toys are also expanding markets that heavily rely on lithium.
And then some domains will likely take off as people need to charge their lithium batteries quickly and cheaply. So another way to take advantage of the lithium growth is to invest in solar energy companies, especially portable solar energy storage that allows people to charge their devices and transportation batteries.
4. Diversify Your Investments
In line with learning about the entire infrastructure of the lithium market, you should use that knowledge to spread your investments around in a diverse way. Putting all of your money into one place is a much bigger gamble, and while you occasionally hear stories of people making it big, the safest advice is to diversify your investments.
You can do this yourself by investing in different companies throughout the lithium supply chain. The infrastructure of the lithium industry includes mining companies, battery companies, electric vehicle companies, and other big lithium-using industries like glass and ceramic production.
You can also diversify your investment in lithium by buying an exchange-traded fund (ETF) that splits up your investment into a plethora of lithium companies.
An ETF is similar to a mutual fund except that it can be bought and sold throughout the day, and the ownership of the ETF is usually divided amongst multiple people. For precious metals like lithium, you should look into commodity ETFs. They are less regulated than security investments and allow you to split up investment into a diversified portfolio.
5. Find Large And Small Lithium Producers
As is often the case in big industries, a handful of companies will account for the majority of the production. In America, these lithium mining companies include:
- Lithium Americas Corp
- Galaxy Resources
- Piedmont Lithium
These giant companies are expected to maintain their share of the lithium market space as it expands over the next ten years, so getting in on these as early as possible is ideal. Albemarle, for example, owns a mine in Nevada and Chile, and they are the largest supplier of lithium for electric vehicles in the world.
But it is smart to set aside some of your investment for smaller companies, including international companies. Some of the top smaller lithium mining companies include:
- Canada Lithium
- Resources Ltd. of Australia
- Simbol LLC.
Smaller companies, by definition, carry a bigger risk, but their potential for radical growth also means that they occasionally bring you a huge return on investment.
6. Research Foreign Markets
Foreign lithium markets are a potentially great investment for multiple reasons, but the two main reasons are that foreign governments are incentivizing battery technology and that many of the biggest lithium reserves exist in places like Brazil, Argentina, Australia, Chile, and China.
The countries that are heavily pursuing the lithium industry are both countries that have lots of naturally occurring lithium—Argentina, Chile, and China—or countries that wish to incentivize industries associated with lithium like battery technology.
Japan, for example, gives subsidies to homes and businesses that adopt lithium batteries to power their establishments.
No matter what level of unique research you are willing to put in, at the end of the day, following general investment advice will tend to work for you.
And since many of the biggest companies will continue to dominate as the lithium industry takes off over the next ten years, it’s a smart move to take the obvious move and invest in the companies with a big market share.
So it is true that research into the smaller and less obvious aspects of lithium can be smart, but in general, investing in companies with a big market share will tend to be the safest and most long-term profitable investment.
Not only do market leaders have the most involvement in the industry, but they also reinvest a portion of their profits into innovation.
So when you invest in a company that is big and successful, you can expect that they will be on the cutting edge of advancing the technology in their market.
Investing in a huge electric vehicle company like Tesla, for example, is a safe way to invest in a company that will stay on the cutting edge of battery technology.
8. Invest in Lithium Stocks
One of the best ways to help the EV revolution is to invest in publicly traded lithium companies by investing in lithium stocks and lithium ETFs. Your investment will go a long way in the production of electric vehicle batteries.
Here are 2 Lithium stocks to consider today:
There are plenty of lithium stocks out there that you can begin to invest in today. Albemarle Corp. (NYSE: ALB) is a major lithium producer at the top of the world, and one of the top lithium stocks to buy today.
Livent Corp. (NYSE: LTHM) supplies the biggest battery producers in the world.
Livent’s lithium carbonate resource in Argentina provides the company with a competitive advantage, while lithium hydroxide conversion plants help the company attract high-profile buyers in US and China.
The stock has rallied more than 67% in 2021 to date and is hitting highs.
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