The Risks and Rewards of Investing in Lithium

With Tesla’s (TSLA) recent announcement that they will produce 500,000 cars in 2018, there’s no doubt that the world is moving toward widespread adoption of the electric vehicle. Many seek to make money from the craze, but there’s a way that does not require direct investment in an automaker: investment in lithium companies. Readers will get more information here on the potential risks and rewards of lithium investment.

The Basics of Lithium

Lithium is a silvery white, soft metal that has numerous applications. It can be used to create heat-resistant ceramics and glass, lubricants, flux for aluminum, iron and steel production, and most relevant to this article—lithium ion and lithium batteries. The demand for these batteries has spurred a significant increase in the price of lithium. However, as more mining projects are announced, current producers face additional competition, and the price spike may be temporary.

Potential Supply

The primary reason for lithium stocks’ weak long-term performance is that lithium isn’t scarce. Even if major investment firms expect demand to triple over the next ten years, apart from short-term problems, there should be no supply gap because lithium is highly available, and increased demand would only drive prices down by making large-scale mining projects more economically feasible.

Lithium Related Risks

Aside from the quickly accessible and abundant supply of lithium, there are other risks of investing in this type of battery stock. As technology grows, it would not be a surprise to see lithium give way to other battery materials. Vanadium is one good example: It can be recharged over 200,000 times, where a lithium battery is only good for about 7000 charges. While vanadium batteries take up more space than those containing lithium, there’s always the chance that new tech will dethrone lithium as the preferred battery ingredient.

In Conclusion

As great and useful as it is, lithium only partly fulfills the criteria for a low-risk/high reward investment. While demand is sure to increase, supplies can quickly increase as well. There’s no direct way to invest in lithium, except with small miners which carry a high level of risk. Global producers only derive part of their revenue from lithium, and they also have ample, untapped potential in the event of increased demand. As with any other investment vehicle, potential investors should do their due diligence before making a decision.