Automakers around the world are rushing to adopt electric vehicles, hoping to take advantage of the strong demand for what is considered more climate-friendly as an alternative to internal combustion engines.
Market leader Tesla, Selling over 300,000 electric vehicles Globally in the first quarter.Volkswagen Hope to overtake Tesla General Motors has announced that it will be an all-electric vehicle by 2035. Ford has seen strong early demand for Lightning, an electric version of the popular F-150 pickup truck.
So how can investors tackle already strong and established global trends? One way is to invest in a company that manufactures batteries for electric vehicles and a company that mines and processes the minerals used by those batteries. Batteries can account for nearly 35-50% of the production cost of electric vehicles, and funds traded on many exchanges are investing in battery makers, miners and mineral processors.
The Global X Lithium and Battery Technology ETF manages over $ 4.6 billion in assets. The fund holds major shares in North Carolina-based lithium mine worker Albemarle and battery makers such as Panasonic and the Chinese company Ganfen Lithium.
Lithium, the lightest metal on the planet, is the heart of most electric vehicle batteries and is often combined with nickel, cobalt and manganese. Demand from electric cars and mobile phones has spurred on, and the price of lithium has skyrocketed, ten times higher than it was just a few years ago. Lithium is mainly mined in Australia, China and South America. The United States produces a small portion of the world’s supply, but there are proposals to increase production.
Much research effort is underway to improve battery performance, reduce battery weight and size, and minimize the time required to recharge the battery.
The most promising, as many say, is the effort to create batteries that use solid lithium. Jayfan, Senior Research Analyst at S & P Global, said: Despite efforts to find alternatives, Mr. Huang said he foresaw the continued central role of lithium. “Even after 10 years, it is very likely that lithium will be used in liquid or solid form,” he said. QuantumScape and SolidPower are two companies conducting solid lithium research.
Amplify Lithium and Battery Technology ETF With approximately $ 200 million in assets under management, it tracks the EQM Lithium and Battery Technology Index. Christian Magoon, CEO of Amplify ETF, said he is looking for a market where governments, businesses and consumers are all spending money. He said that’s the case with electric cars. He said high oil prices are making electric cars more attractive. “If oil prices are well above $ 100, the adoption of electric vehicles in the United States will accelerate.”
Electric vehicles may be good for the environment, but mining minerals for batteries poses environmental and social challenges. “This is not a free and clear path when it comes to environmental issues,” Magoon said. For example, lithium mining requires a large amount of water. Cobalt mining in the Democratic Republic of the Congo In many cases, we use child labor. But so far, these issues have fallen far behind in efforts to find alternatives to gasoline engines.
Like the Global X ETF, Amplify ETFs are heavily invested in Chinese companies. Higher holdings include Contemporary Amperex Technology Company, BYD Company and Yunnan Energy NewMaterials Company. Overall, the fund has 23 percent invested in China. (US-based companies have similar amounts.) China is not only a major adopter of electric vehicles, but also a major mineral owner, a leader in lithium processing, and processing. Has a market share of over 60%.To Pedro Palandrani, Vice President and Research Director of Global XETF
Still, there are risks associated with investing. “If China becomes a villain, it’s very likely that some indexes will be forced to eliminate Chinese companies,” Magoon said.
Jane Edmondson, CEO of EQM Indexes, said she was fully concerned about the risks of investing in China to index with far fewer Chinese companies. EQM Rare earth and important substance index, Tracked by the recently introduced Optica Rare Earths and Critical Materials ETF, and traded under Ticker CRIT. “Investors who want to minimize their exposure in China can rely on CRITETF,” Edmondson said. The index includes four companies based in China and trading in Hong Kong, but have less exposure in China than the Amplify Lithium and Battery Technology ETF. All we can do is minimize the exposure, “she added.
The New York Times reported in June that there was evidence that forced labor in the western part of China’s Xinjiang Uygur Autonomous Region was used in China’s automotive battery supply chain. New US law prohibits entry of products manufactured in Xinjiang Uygur Autonomous Region or products related to work programs in Xinjiang Uygur Autonomous Region.
Another ETF of interest is the VanEck Rare Earth / Strategic Metals ETF, which has over $ 800 million in assets. According to Van Eck, about 40-50% of the portfolio is somehow involved in lithium, but much of that investment is in rare earth minerals that are not used in electric vehicles.
Those vehicles, their batteries, and the minerals that power them continue to be the focus of attention. Depending on the model, electric cars are more expensive to buy than gasoline cars. However, in terms of total cost of ownership, electric vehicles are generally cheaper to maintain and fuel, which could already be 10-20% cheaper in the United States, Van Eck analyst Veronica Zhang said. increase.
Various types of investment trusts make scattered investments in electric vehicle materials and battery companies. The Franklin Rising Dividends Fund owns more than 5 million shares of Albemarle, a leading producer of lithium and other minerals. “Albemarle benefits from its low-cost position. It’s a high-quality, low-cost resource,” said portfolio manager Nick Getaz.
Lithium prices soared 437 percent last year as the industry struggled to meet the surge in demand. And prices rose sharply in the first half of 2022, the EQM Index reported. Seth Goldstein, Morningstar’s Energy and Resources Equity Strategist, said: According to many analysts, the problem is that the lithium mining industry received little investment before prices began to rise, and it will take years for new lithium projects to start production. “Time is the number one factor. These projects take time,” he said.
Albemarle is still fully benefiting from the rise in lithium prices, as many of Albemarle’s clients are long-term trading at fixed prices below the current spot price of lithium, according to Goldstein and other analysts. not. When these transactions expire, the company will be able to negotiate new transactions at a higher rate.
Albemarle shares have fallen sharply in recent weeks, along with shares of other companies that contribute to electric vehicles. The recent price was $ 203, about 80 points below the November 2021 high.
Getaz provides a subtle rating. Albemarle is “fairly valued” when it comes to price-earnings ratios, he said. However, as the company invests in capital projects “to invest resources,” free cash flow in 2022 will show a loss of more than $ 550 million. It will discourage many potential investors. But by next year, Getaz said it should be a plus of more than $ 500 million.
Contributors to Albemarle and other electric vehicle batteries generally appear to have time on their side.