According to Frost & Sullivan, the global market for lithium-ion batteries is expected to double to $22.5 billion in 2016 from $11.7 billion in 2012.
Consumer goods and automobile sectors are driving the demand.
The share of the automobile sector in the lithium-ion battery market is expected to grow to 25% in 2016 from 14% in 2012, per the data from Frost & Sullivan. This represents a Compounded Annual Growth Rate (CAGR) of 37%. With the increasing use of lithium-ion batteries in consumer electronic products as well as efforts to promote the use of electric cars by many governments to curb pollution, the demand for these batteries is expected to rise
Among the elements of the universe, lithium is a real lightweight — the third lightest of them all with an atomic weight of 3, right behind helium at 2 and hydrogen at 1.
But as one of the most conductive metals in existence, lithium is a true heavyweight in the field of energy storage and battery design.
In hot demand as the chief ingredient in batteries where power and long life are critical — such as in electric cars and aerial drones — lithium is rapidly becoming one of the hottest commodities to invest in, driving multiple market segments from mining to manufacturing to advanced electronics.
Unfortunately, that hot commodity may be too hot to handle. It has been known to spontaneously combust, causing its batteries to fully discharge all of their stored energy in a flash — literally. We’ve all seen those YouTube videos of Tesla Motors’ electric car going up in flames when its lithium battery was punctured by road debris.
Will the explosion in lithium production and uses continue to make it one of the most promising commodities to invest in? Or will the literal explosion of its batteries cause its prospects to go up in flames?
Lithium Packs a Powerful Punch
Two important characteristics of lithium make it extremely sought after as the chief material in batteries:
- High reactivity: Like all alkali metals, lithium atoms give up electrons very easily, making them highly efficient producers of electric current.
- Light weight: As the third-lightest element in the universe and the lightest of all the solids, manufacturers can pack a tremendous amount of lithium into a small space while still keeping the overall weight of the package ultra light.
Combine these two characteristics, and you get an awful lot of electric power packed into a small space that is extremely light — perfect for powering everything from cell phones to tablets to cars to drones, which demand power and long battery life without adding a lot of weight.
Characteristics that make it temperamental to deal with:
- Flammable and explosive: When exposed to air, oxygen causes lithium to ignite and burn, while nitrogen binds to lithium atoms producing lithium nitride. If there is any water present — even air moisture — the lithium nitride hydrolyzes, releasing ammonia gas (which is caustic and corrosive) and hydrogen gas (which is explosive).
Thus, a simple puncture of a lithium battery’s protective casing can cause lithium to explode as it comes into contact with air and moisture, producing toxic and corrosive fumes and fires that are difficult to extinguish, requiring dry powders to put out. Quite the negative publicity, which has been readily brought to the public’s attention thanks to viral videos of burning cars.
Yet manufacturers are already finding ways of improving even this newest of technologies.
Keeping an Eye on Ions
While lithium batteries are pretty much the best one-time-use power cells on the market, it’s the reusable, rechargeable lithium-ion batteries that are most used in consumer devices from phones to music players to tablets and now even autos. In 2013 alone, over 5 billion lithium-ion batteries were sold to consumers, with demand soaring by the year.
Where disposable batteries use metallic lithium as the negative anode and manganese dioxide as the positive cathode, rechargeable ion batteries replace the manganese dioxide at the positive cathode with lithium cobalt oxide. While this increases energy density, making the batteries longer lasting, it also increases the risks of overheating, fire, and explosion.
To make ion batteries a little safer, manufacturers have replaced the lithium cobalt oxide with either lithium iron phosphate, lithium manganese oxide (one oxygen atom as opposed to dioxide’s two atoms), or lithium nickel manganese cobalt oxide. This latter one (NMC) is the favored configuration for electric cars.
The need for NMC batteries is so huge that Tesla Motors announced last month that it will build its own lithium battery factory — the world’s largest. The company is gearing up to begin production of its next generation electric car in three years’ time, and it doesn’t want any battery shortages to interfere with production.
As the ever-increasing production of portable consumer devices, electric cars, and even electric military equipment will dramatically increase the demand for lithium-ion batteries, lithium may well provide investors with an investment opportunity of a lifetime.
As noted in the graph below, lithium production has already tripled this century, from 200,000 tons in the year 2000 to over 600,000 tons last year.
Luckily for manufacturers, mining lithium is relatively inexpensive, especially at brines in high mountain plateaus, where lithium coats the surface of the ground after the sun has evaporated the water from the deposits.
Because miners can simply scrape lithium off the surface of the ground, brine excavation is just about the only lithium extraction game in town, with actual hard rock mining of lithium priced out of the market by the brines.
The highest concentrations of lithium are found in the high altitude regions of the Andes Mountains in Chile, Argentina, and Bolivia, as well as in the mountains of Tibet and China. Mid-range concentrations of lithium can also be found in the mountain ranges of Nevada, California, Colorado, and Utah.
Future electric energy material providers:
- Sociedad Quimica y Minera (NYSE: SQM): This $8.7 billion mid-cap based in Chile is the largest producer of lithium in the world in the largest lithium-producing country in the world. While lithium production is only 10% of the company’s output, the company mainly engages in the production and distribution of specialty plant nutrients, iodine and its derivatives, potassium chloride and potassium sulfate, industrial chemicals, and other commodity fertilizers. So you get some diversification. The stock jumped some 30% from $26 to $34 on Tesla’s announcement of its proposed new car model and battery factory.
- FMC Lithium, a division of FMC Corp. (NYSE: FMC): This $10.4 billion American large-cap is the world’s second-largest producer of lithium, with a 23% market share. The company’s main focus is in agricultural, consumer, and industrial markets for crop protection chemicals, including insecticides, herbicides, and fungicides. Its stock also rallied on Tesla’s news, rising some 9% from $72 to over $78.
- Rockwood (NYSE: ROC): This $5.9 billion American mid-cap recently purchased a 49% share in Talison Lithium, granting it access to the largest known lithium reserves in the world. The company develops, manufactures, and markets specialty chemicals including lithium and rubber/thermoplastic components to the auto industry. Its stock has risen some 17% over the past month from $68 to $80 on Tesla’s news, as well as on improved company positioning within its markets.
- Global X Lithium ETF (NYSE: LIT): Of course, you also have a lithium ETF if you want to spread your investments across multiple holdings. Trading since 2010, LIT holds all three of the above listed lithium producers as its top three holdings — FMC weighted at 19.31%, ROC at 19.15%, and SQM at 7.5%. LIT’s shares have risen 16% from $12 to $14 over the past month.
Lithium’s Powerful Future
Although there are already some experiments being conducted on even newer battery technologies using magnesium-ion cells instead of lithium-ion, still more powerful batteries than magnesium cells are sticking with lithium — including lithium-sulphur and lithium-oxygen combinations.
Given its light weight, ease of chemical reactivity, and inexpensive extraction and production, you can bet on lithium powering cell phones, laptops, tablets, cars, drones, and all the other new gizmos the next generation of techies will invent.
In fact, lithium presents us with a rather longer-term investment opportunity compared to most technologies. By investing in materials that are used across multiple technologies rather than investing in an individual device or brand, we avoid the short-term crashes that come from a company or product that has suddenly been made obsolete by a competitor.
While electronic consumer products and companies come and go, lithium will remain as the product that will power them all for decades to come. This featherweight packs