The astronomical share price growth experienced by electric vehicle (EV) manufacturers over the last 12 months has created a bubble that could pop without warning. With the possibility of EV production running out of juice, there are other ways for investment portfolios to gain exposure to the industry, however — namely through lithium-ion battery technology.
With many countries set to phase out petrol and diesel vehicles over the next 10 to 15 years, investment in innovative battery technology for the automotive industry is expected to accelerate. Lithium-ion is the battery of choice for many firms. It enjoys energy density and longer charge retention than other options, which means vehicles can travel hundreds of miles between charges.
The lithium-ion industry is forecast to be worth $91.8bn by 2025, according to a Research and Markets report. It was valued at $32.9bn in 2019.
Forecast Lithium-ion industry value by 2025
Lithium-ion battery start-ups have already been attracting the attention of retail investors and institutions thanks to some of them going public via a special purpose acquisition company (SPAC). Some young businesses with ambitious growth targets choose to go down the SPAC route to avoid the scrutiny and red tape that comes with an initial public offering. One example is Romeo Power [RMO], which debuted on the New York Stock Exchange on 30 December.
The company has already announced that it will be supplying battery packs to Lion Electric, which is focused on electric bus production. The firm is set to trade under the LEV ticker following a merger, but will go public via the SPAC Northern Genesis Acquisition [NGA]. Romeo Power’s share price climbed 19.5% on 13 January, the same day that Lion Electric featured on Jim Cramer’s ‘Mad Money’ on CNBC.
Mining for profit
It’s not just the companies developing the battery technology that provide a potential investment opportunity. Companies along the lithium supply chain could also be worth considering, including those that mine and refine the metal.
As Keith Phillips, CEO of lithium mining company Piedmont Lithium [PLL], told CNN Business recently: “You can't have electric cars without batteries and you can’t have batteries without lithium… There is still a huge opportunity for companies across the EV supply chain. Investors need to think more about that and not just about Tesla [TSLA].”
"You can't have electric cars without batteries and you can’t have batteries without lithium" - Keith Phillips, Piedmont Lithium CEO
Piedmont Lithium’s share price gained 308% in the last 12 months, and is up 54.1% so far this year, through 15 January, to $40.91. The stock hit an all-time high of $54.50 during intraday trading on 28 September, but slumped as low as $4 in March 2020.
The US has one of the world’s largest lithium reserves, along with Argentina, Australia, Bolivia and Chile, and the lithium industry could be set for a major boost under incoming US president Joe Biden. He has registered his support for US miners in the production of metals for the EV industry, Reuters reported back in October.
This would spell good news for Piedmont Lithium, which has a production facility in North Carolina. Another beneficiary would be Albemarle [ALB]. It announced earlier this month that it had plans to double production at its lithium facility in Nevada by 2025 in order to meet demand from the EV market.
Albemarle’s share price rose 105.4% in 2020 and is already up 22.1% so far in 2021 (through 15 January’s close). The stock has surged circa 60% since Biden’s win was confirmed over the first full weekend of November.
Investors looking to reduce risk and increase exposure to the lithium supply chain can also try the Global X Lithium and Battery Tech ETF [LIT]. The index tracks the supply chain from the mine to finished vehicles, and its top holdings include BYD [1211.HK] and LG Chem [051910.KS]. The index gained 127.9% in 2020 and is up 3.00% year to date (as of 15 January’s close).
Supply and demand
Despite the potential upsides for lithium production, there could be bumps in the road ahead.
Eric Norris, president of Albemarle’s lithium business, told the Reuters Next conference that, while mining companies might have the capacity to scale up production, there is a risk that lithium supplies will not be able to meet demand for EV batteries. In order for production expansion to be possible, the price of lithium will need to go up considerably, said Norris.
“If we don’t work as a supply chain together — from the lithium supply base all the way to the EV producer — there is a risk of slowing down plans,” he added.
"If we don’t work as a supply chain together — from the lithium supply base all the way to the EV producer — there is a risk of slowing down plans" - Eric Norris, Albemarle's lithium business president
While new and innovative lithium-based batteries, such as QuantumScape’s [QS] solid-state battery, are showing promise, many of these technologies are still being developed or tested and remain a few years away from being deployed. In the meantime, investors considering the lithium market should be aware — if they’re not already — that the lithium-ion battery is facing competition from other battery tech, particularly hydrogen fuel cells.
Elon Musk, Tesla CEO, has previously laughed off suggestions that hydrogen fuel cells will power the EVs of the future, and Herbert Diess, chairman of Volkswagen [VOW3], has also voiced his concerns, saying they don’t make sense. This hasn’t stopped hydrogen specialist Plug Power [PLUG] soaring 1,803.2% in the last 12 months and gaining 77.4% since the start of the year (as of close on 15 January).
While “nothing can do what lithium does for portable charging,” according to Phillips, long-term growth and success in the lithium industry is going to depend on future battery developments and whether the lithium industry is able to keep pace with the demand for EVs.