Poor lithium. The metal is so light it floats, so soft it crumbles and so unstable it’s perpetually searching for a partner, which is exactly why we love it. Lithium has what scientists call a valence electron, a single negatively charged particle orbiting far from the nucleus, which binds easily with other atoms. This inclination to “share” itself is what makes lithium particularly effective at transmitting energy and conducting electricity.
It’s also one of the reasons why lithium is ideal for rechargeable batteries, since that flirtatious electron can return home just as quickly as it left.
Hard to Find
Lithium is unquestionably a game changer, and flirtation has blossomed into true love among engineers designing power plants for electric vehicles, handheld devices, even large scale power grids. There are some complications however.
About two-thirds of proven reserves are concentrated in a small, high-elevation area of South America called the Golden Triangle, located at the intersection of Argentina, Bolivia, Chile. In addition, most lithium appears as tiny particles suspended in briny solutions that have to be pumped to the surface, and extracting lithium through evaporation can take months. Finally, just four companies account for 86% of global lithium production, compared to 739 publicly traded gold miners according to Bloomberg data.
Highly Concentrated & In-Demand
While lithium supply is highly concentrated, lithium demand is widespread and multiplying quickly. Two important new industries may ultimately swamp mobile device battery demand: Electric vehicles and utility power installations.
- Tesla Inc’s (NASDAQ:TSLA) Model S battery power plant requires more than 100 times the amount of lithium in a typical cellphone. Goldman Sachs estimates, “Every 1% increase in battery electric vehicle penetration increases lithium demand by around 70,000 tonnes of LCE/year.”
- Southern California Edison has just brought online 396 refrigerator-sized stacks of Tesla “Powerpack” batteries 40 miles east of Los Angeles. According to Moody’s Investors Services, “California is looking to the future, and in the long run, they would have less need — maybe no need — for new natural gas generation.”
Here’s your takeaway: Lithium stocks are about a lot more than cell phones. Lithium has a longer, steeper and wider glide path than forecast even two years ago. I like ground-floor businesses, and I especially like ground-floor stocks. With that in mind, here are three lithium stocks to buy under $3.