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LIT Soars In 2020: What Investors Need To Know About Tesla, Electric Vehicle Derivative Play

December 28, 2020 8:23 am
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LIT Soars In 2020: What Investors Need To Know About Tesla, Electric Vehicle Derivative Play

Plenty of electric vehicle stocks and related exchange traded funds are soaring this year, a charge led in large part by the likes of Tesla (NASDAQ:TSLA) and Nio (NASDAQ:NIO).

What Happened: For now, EVs are powered by lithium-ion batteries, and that goes a long way in explaining why the Global X Lithium & Battery Tech ETF (NYSE:LIT) is higher by almost 117% year-to-date.

LIT, which tracks the Solactive Global Lithium Index, was ahead of its time as an ETF play on the EV space, debuting in July 2010. Home to 41 stocks, LIT is more a lithium ecosystem idea than dedicated EV ETF, but the fund does allocate 5.29% of its weight to Tesla, giving it some chops as a Tesla ETF.

Why It's Important: What makes LIT relevant heading into the new year is that some of the fund's marquee holdings address lithium demand in both the U.S. and China, the world's dominant EV markets.

Ganfeng Lithium, LIT's second-largest component, is a major player in China's lithium supply chain.

“Established in 2000, Ganfeng is the third-largest lithium compound producer in the world and the leading producer in China,” according to Global X research.

“The company is unique because it covers a wide swath of the lithium-ion battery supply chain, including lithium resource development, refining & processing (75% of total revenue), battery manufacturing (17% of total revenue), and battery recycling & other (8% of total revenue).”

Investors new to the EV and lithium realms may be apt to think of Japan's Panasonic as a maker of consumer electronics, but that company — LIT's sixth-largest holding — is an important part of the EV landscape due in large part to its relationship with Tesla, including the Nevada Gigafactory.

“Recently, Panasonic started working on Tesla’s featured battery cell called 4680,” notes Global X. “The new format is expected to store more energy and have an easier manufacturing process, two keys to further reducing battery costs. Currently, a battery represents approximately 29% of the total cost of an EV. As EV manufacturers seek to gain market share from ICE vehicles, reducing battery costs is critical.”

What's Next: EVs are nearing price parity with internal combustion engine competitors, and that scenario could arrive sooner than expected, providing a longer runway for growth with LIT.

Investors appear comfortable wagering to that effect as highlighted by 2020 inflows of $643 million to LIT.


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