Capturing lithium’s investment return potential as the electric car gains ground

The metal has many uses in developing areas of technology, which makes it an interesting investment for those with a long-term outlook, he adds. “You have a huge potential market for lithium with the growth of electric vehicles and also a budding market with renewable energy storage. Those have become the key drivers of potential growth in the future.”

Institutional investors can also look at exposure to lithium as a hedge against the potential downfall of traditional energy providers, such as fossil fuels, which may not perform as well as investors expect in the coming years, says Jacobs. “Institutions, historically, have had a lot of energy exposure. Part of that is due to looking at longer-term sources of income, and looking at things like pipelines and more alternative plays in the energy space. We see lithium and battery tech as a hedge on some of that exposure as the movement towards electric vehicles is going to have an adverse effect on the energy space.”

The biggest source of lithium demand growth will come from electric vehicles, he continues. “Historically, most lithium demand has come from industrial uses . . . but if you look at the pace of those businesses, they’re growing at the pace of [gross domestic product]. That’s not a high growth rate. If you look at electric vehicles, your typical electric vehicle uses about 10,000 times as much as a cellphone. So it’s a huge amount of lithium per vehicle.”

It’s only a matter of time before electric vehicles become cheaper than those with internal combustion engines, because of downward trajectory in the price of batteries. “You could see a market where we’re going to need five to 10 times more lithium as produced this year by the mid-2020s, versus what we produce today,” says Jacobs. “So that’s a huge shift in the dynamics of that market.”

Renewable energy is another expanding area that’s increasing demand for the material, he adds. “If you look at renewable energy, solar and wind, it’s intermittent, so they need to store it and be able to provide that power to the grid when it’s needed. So lithium ion batteries are one solution to that. It’s a very small part of the market, but in percentage terms, it’s growing quickly, as you see more installations around the world.”

Renewable energy isn’t expected to have as strong an impact as quickly as electric vehicles, but it’s a growth market worth watching, says Jacobs.

And looking directly at lithium mining companies, they tend to be leveraged to the price of the material itself, he noted. While the mining business is high risk, an increase in the price of lithium, as well as the increasing total output of lithium, should benefit companies on a broad basis.