Billions Will Be Invested in Lithium Mining To Meet Huge Demand for EVs
I'm very happy to welcome on to the program Pedro Palandrani. He is the Director of Research at Global X ETFs. Welcome to the program, Pedro. Thanks for being here.
Pedro Palandrani: Thanks for having me, Ric.
Ric: What I asked Pedro to come on to the show for is because he deals with electric vehicles. This is a hugely popular conversation. Pedro, everybody's talking about electric vehicles, EVs, but are they an investment opportunity?
Pedro: They really are. If you think about it, investors could potentially approach this opportunity from two different segments, right? They could be investing directly in the Tesla’s of the world or they could move upstream within their supply chains looking at battery technology companies and lithium miners. From our perspective, there is an opportunity in both sides of the equation. However, our conviction is higher upstream because we know that car companies are going to need batteries and batteries are going to need lithium. And we believe that investors could really capture that opportunity with these type of companies.
Lithium Mining Capacity Can’t Keep Up with Demand
Ric: How much lithium do we need to be able to build all the batteries that we're going to need for all the electric cars? Where do we even get it right?
Pedro: Well, currently we do not have enough lithium. Actually, in 2022, we're already seeing a deficit of lithium. Just to give you some numbers there, this year, we need about 600,000 metric tons of lithium to power electric vehicles and a few other applications. By 2030, that number is expected to grow about 5X - close to two and a half million metric tons of lithium. Unfortunately, we don't have enough capacity to get to that number today. Just for context, it takes between 3 to 5 years to bring a new lithium mine to market, so that inelastic side of the supply really creates challenges for bringing new lithium to market. So of course if you think about it, that's positive for lithium miners, right? Because lithium prices are going up significantly. Actually right now are at 10X their historical averages. So lithium miners are significantly benefiting from that rise of lithium prices.
Raw Material Costs and Supply Are Driving Up EV Prices
However, electric vehicle manufacturers not so much. And we already are seeing companies like Tesla, Rivian and a few other international companies increase in the prices of electric vehicles because of the inflation that we're seeing on the key raw materials. Now, you also asked me, where are we getting that lithium today? About 40% of the lithium actually comes from Australia and about another third of the total lithium supply comes from what is called the lithium triangle. So that's Argentina, Chile and Bolivia in South America, and a lot of that lithium then gets processed in China. So China continues to be a key player in the industry. It really needs to process all that, all that lithium into the specialty chemicals that ultimately go within the batteries. And ultimately those batteries get distributed around the world for the EV companies.
Ric: We're not mining enough lithium to meet the need and therefore lithium prices are rising. Does this mean we're going to have an increase in the price of these cars in 2022?
Pedro: We're already seeing electric vehicles being more expensive than in 2021, but we would expect battery technology to continue to improve, to offset some of the cost inflation that we're seeing in the raw material market. So EVs are definitely going to become cheaper than internal combustion engine cars somewhere within the next 2 to 4 years.
Ric: So there are other battery technologies that might make the need for lithium decline?
Pedro: You have batteries that use nickel, cobalt, manganese, you have older batteries that use aluminum. Their batteries are concentrated in iron. But lithium is kind of the key raw material, at least over the next 10 to 15 years. So that's really an opportunity to capture the opportunity in lithium because we know that we're going to have to invest billions of dollars in lithium and mining activity to be able to meet the very ambitious goals from EV companies.
Pedro: At Global X, you have the Global Lithium and Battery Technology ETF. So for people who are interested in investing in this space, talk about how it works, the kinds of companies that it invests in.
Just for context, we launched these product back in 2010. That's our first thematic ETFs. As you know, here at Global X, we are very well known for a very robust thematic ETFs suite. Right now with 36 different thematic ETFs. And back in the day, it was really to capture the opportunity that we were seeing in lithium demand coming from consumer electronics. We knew that the smartphones and consumer electronics needed lithium ion batteries to power these products. But of course, right around 2014, 2015, when EVs started to become a reality, a lithium demand started to pick up because of electric vehicles. So we benefited from that trend.
Now, our ETF is really trying to provide exposure to these lithium miners. Companies like Albemarle, Jianfeng, lithium in China, SQM down in Chile, and a few other major lithium miners in junior lithium miners, pre-revenue companies that are just starting their operations all around the world to mine lithium. And that moves downstream to battery technology companies. The companies that are working with the Teslas of the world, with BMW, with VW. So you have companies like CATL, Panasonic, LG, Chem, BYD - all of these battery technology companies are working with a large number of car companies. And so we really feel that these two segments, lithium miners and battery technology companies, are extremely well positioned to benefit from this large commitment in terms of dollars and goals from car companies to electrify their fleets.
Ric: Well, I'm a fan of the fund. Jean and I own the Global Lithium and Battery Technology ETF. Symbol LIT. We own it as part of our diversified portfolio. So if you are interested in adding this type of thematic investment to your portfolio, you can contact GlobalXETFs.com or talk with your financial advisor. That's Pedro Palandrani of Global X ETFs here on The Truth About Your Future. Pedro, thanks so much for joining us on the show today.
Pedro: Thanks for having me, Ric.