Investment Opportunities in Lithium: The Complete Guide for 2024

Lithium has established itself as the essential material of the 21st century, driving the technological revolution in transportation. Unlike oil, which dominated the last century, this element is fundamental for batteries in electric vehicles manufactured by global automakers such as Tesla, Toyota, BYD, and Honda. For those wondering how to invest in lithium, there are multiple avenues ranging from direct raw material acquisition to shares of specialized companies.

Why lithium is the investment of the moment

Regulatory backing and guaranteed demand

The European Union, China, and the United States have implemented legislation that will prohibit the sale of combustion vehicles starting in 2035. This decision represents a structural market shift, not a temporary trend. Only electric vehicles will be sold in major global markets, ensuring sustained lithium demand in the coming years.

Short-term supply shortage forecast

Over the past five years, lithium prices have experienced a remarkable surge: from approximately $24 per ton to around $70. Analysts project this figure could easily surpass $100 per ton in the coming years, driven by demand that will grow faster than global production capacity.

Lack of technological competition

Although alternatives based on sodium, silica, and zinc are being researched, these solutions will not reach mass markets within a decade. Lithium maintains its dominant position without viable rivals in the near future, making it the safest option for investors.

Key strategies for investing in lithium

Direct investment in raw materials

Lithium can be purchased as a commodity on specialized trading platforms. With this approach, returns are directly linked to the material’s price. However, this option tends to generate more modest gains compared to other available market alternatives.

Shares of mining and production companies

Companies dedicated to lithium mining enjoy extraordinary prospects. Their business model is straightforward: the more lithium they extract and process, the higher their profits. Sector demand is virtually guaranteed over the next decade, regardless of technological changes in other areas.

SQM - Sociedad Química y Minera: A global leader in production, this Chilean company extracts lithium in the Atacama Desert and Antofagasta. Its shares have experienced steady growth since 2020, although its geographic concentration in Chile presents some competitive limitations.

Albemarle: The second-largest producer worldwide, this US firm operates two strategic mines: one in the Salar de Atacama (Chile) and another in Nevada (United States). Its stock value has multiplied by five since 2020, reflecting market confidence in the sector.

Tianqi Lithium: Dominates the Eastern Hemisphere market from its headquarters in Sichuan. While SQM and Albemarle control the West, Tianqi fuels exponential growth of electric vehicles in China, positioning itself as a key player in the most dynamic EV adoption region.

Lithium-ion battery manufacturers

Companies that turn lithium into batteries represent an intermediate option in the value chain. Although these companies benefit from the EV boom, their stock performance does not always directly reflect the success of their battery products.

Tesla: Beyond being an EV manufacturer, Tesla is vertically integrating battery production in its gigafactories, reducing reliance on external suppliers. Additionally, it produces residential batteries (Powerwalls) and large-scale storage systems (Megapacks) for renewable energy installations, diversifying its energy product portfolio.

Panasonic: As Tesla’s main lithium-ion battery supplier, this Japanese company holds a privileged market position. However, its broad portfolio of electronic products disperses the impact of battery performance on its stock price.

CATL: Located in Ningde, CATL is one of China’s largest battery manufacturers, serving both the EV market and residential and industrial storage systems. Its performance has been solid, recovering from previous corrections and trading above $400, with potential for further gains in the coming years.

Solid Power: This emerging company specializes exclusively in batteries for electric vehicles, but its stock history is still limited. It presents a high-risk/high-reward opportunity: if its technology proves superior, it could become a “unicorn” with impressive gains; if it fails, losses could be significant.

Electric vehicle manufacturers

EV producers represent the final link in the lithium value chain. Investing in these manufacturers is relatively safe, although competition is fierce and consumer preferences may evolve.

Tesla: Revolutionized the EV market from scratch, forcing traditional competitors to invest in electrification. Although it has experienced recent corrections, it continues to lead in the US and Europe, and is the third EV manufacturer in China. Its technological edge and vertical manufacturing ensure a strong competitive future.

Toyota: The Japanese automaker was one of the first to recognize the need to adapt to the electric future. Currently, it is the second-largest EV market share holder in the West, with a stock performance reflecting this position of strength.

BYD: Dominates the Chinese EV market with a significant advantage over competitors. Replicating Tesla’s model, BYD produces its own lithium-ion batteries, reducing dependence on third parties and allowing for cost optimization of its vehicles. Important: Do not confuse BYD (BYDDY) with Boyd Gaming Corporation (BYD), which is a casino company unrelated to the Chinese automaker.

Lithium-focused ETFs (ETFs)

For investors who prefer to delegate asset selection, there are specialized ETFs in the sector.

Global X Lithium and Battery Tech ETF (LIT): The most well-known and with the longest track record in markets. Its performance reflects key companies like Tianqi Lithium, SQM, and BYD. Although it yielded only 0.98% in the last year, in 2024 so far it has offered significant returns with potential to multiply in the coming years.

Amplify Lithium and Battery Technology ETF (BATT): With less history than LIT but solid performance, BATT includes lithium producers and EV manufacturers. It has nearly doubled investors’ capital between 2020 and 2023, aiming for results similar to the market leader.

WisdomTree Battery Solutions UCITS ETF (CHRG): Recently created, CHRG presents the highest risk among the three due to its short track record. However, it can serve as a complementary option for diversification of lithium-focused portfolios.

Profitability and risk analysis

Short- and medium-term outlook

The displacement of combustion vehicles by electric ones is inevitable within the next ten years, especially considering the legislated bans already approved. Major global manufacturers require lithium-based batteries as an essential raw material. Demand is expected to surpass supply during this decade, potentially multiplying profits for producers like SQM, Albemarle, and Tianqi.

Long-term perspective

Beyond fifteen years, it’s likely that new materials will gradually displace lithium. Sodium emerges as a leading candidate, but industrial implementation is still distant. Therefore, the path is clear for lithium to solidify its position as one of the best investments of this decade.

Clear advantages

• Essential and irreplaceable for the EV industry today
• Regulatory demand guaranteed by international legislation
• Potential for demand-supply imbalance
• Exceptional historical performance since 2020
• Opportunities in high-profit emerging companies

Risk considerations

• Alternatives to lithium are being researched but are not near-term viable
• Not all sector companies offer the same profit potential
• Some producers are currently trading at high valuations
• Inherent volatility of raw materials and developing technologies

Timing to act

Investing in lithium today is comparable to investing in oil in 1880. It is the fundamental material for an automotive industry destined to replace internal combustion vehicles, representing one of the safest bets in the current market.

Interest groups maintaining the oil industry generate negative narratives around lithium and electric vehicles. However, history is clear: no industry is eternal, and lithium takes the torch in the 21st century. Whether through investment in mining companies, battery manufacturers, or EV producers, the potential for significant returns in the next decade is substantial.

Shifting capital from fossil fuels to companies involved in the electric transition could maximize medium- and long-term gains, positioning portfolios to capitalize on the most relevant technological transformation of our time.

Frequently asked questions about investing in lithium

What is the difference between lithium-ion batteries and lithium polymer batteries? Lithium-ion batteries use liquid electrolyte, while lithium polymer batteries employ solid electrolyte. Lithium-ion batteries offer greater durability and cost-effectiveness, though they are bulkier and flammable.

What material could replace lithium in future generations? Options based on sodium, silica, and zinc are being explored to create batteries with higher energy density within several years, but large-scale implementation requires further development.

Do lithium batteries pose fire risks? Yes, accidents, manufacturing defects, or improper maintenance can cause ignition. However, fossil fuel tanks are also flammable, and lithium is safer in daily vehicle operation.

What is the environmental impact of lithium extraction? Mining causes damage during extraction, similar to oil and gas industries. The difference is that lithium batteries enable vehicles without CO2 emissions, significantly offsetting environmental impact compared to combustion.