Tesla Plans Boosting Lithium ETF (LIT, TSLA, ROC, FMC, SQM)
The announcement from Tesla Motors (NASDAQ:TSLA) that it will build the worlds largest battery factory has sent the stock to a new all-time high. As the investment community focuses on the stock hitting new heights, there is another niche sector that could be big winners as the Gigafactory plans are unveiled.
TSLA plans to unveil its third generation vehicle in the next three years that will retail for around $35,000. This move should increase the demand dramatically for the electric vehicles. A key component to TSLAs electric vehicles is the lithium-ion cells and with each car requiring thousands, the demand for the batteries will increase dramatically.
The car company is already planning on buying 1.8 billion lithium-ion cells over the next four years from Panasonic (OTC: PCRFY). But if you do the math, that only equates to enough cells for approximately 250,000 vehicles. If the third generation cars sell as well as many believe, there will be a major shortage of batteries. This is why Elon Musk and TSLA have decided to build the Gigafactory in California.
It is pretty simple to deduct that the demand for lithium will increase in the years ahead and that the major lithium producers should be beneficiaries. There are three major lithium producers in the world that account for the majority of lithium that is used in various industries.
Sociedad Quimica y Minera (NYSE: SQM) is the largest producer of lithium in the world and is based in Chile. Chile is the largest producing country in the world, followed by Australia. Even though the company is the largest producer in the world, it is not a pure-play, as less than 10 percent of its sales are from lithium. The stock has begun to rally and is up 8.5 percent this week on the TSLA news.
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FMC Lithium, a division of FMC Corp. (NYSE: FMC), is the worlds second largest producer of lithium with a 23 percent market share. The stock is up 4.7 percent this week and is a few ticks away from breaking out to a new all-time high. Similar to SQM, the lithium component of FMC is not big and therefore not a pure-play stock either.
The third major player in the lithium sector is Rockwood (NYSE: ROC), which has gained 7.3 percent this week. The company is the world leader in lithium-based compounds, after acquiring a 49 percent stake in Talison Lithium last December. The move helped ROC have access to the worlds largest known lithium reserves.
With all three major lithium stocks having business models that have them involved in a variety of other chemical sectors, the best way to play the lithium revival that will be taking place with the Gigafactory is the Global X Lithium ETF (NYSE: LIT).
The top holding for LIT are ROC (20 percent), FMC (20 percent), and SQM (7 percent). The ETF currently has 58 percent of its assets in lithium mining and processing companies with the remainder in the battery makers. Panasonic is the fourth largest holding with an allocation of 6 percent. The stock has rallied 13.7 percent this week on the news it will invest up to $1 billion in the new TSLA factory.
The news of the new factory has brought attention to LIT has it has rallied over seven percent this week and the volume is more than five times the average during the breakout. This is a long-term megatrend that could see demand and prices for lithium increase and the stocks that make up LIT could be the biggest winners.
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