The Future of the Automobile Industry
While Elon Musk is perhaps most famous for his innovative forays into the electric car industry via Tesla Motors, Inc (NASDAQ:TSLA), the technologies that power his company’s automobiles rely on the far more traditional market for metals. That is, without a steady supply of lithium — the metal that is absolutely essential to the lithium-ion batteries used in Tesla cars — Tesla production would suffer enormously. Acting accordingly, Musk and Tesla motors have invested heavily in lithium markets in an effort to shore up a constant supply of this metal for their products. Indeed, Musk has gone so far as to predict that his factories (such as the currently under construction ‘Gigafactory’) will someday be producing as many lithium-ion batteries as the rest of the world’s output, combined. While Tesla may be at the forefront of the electric car industry in the United States at the moment, the rest of the market has begun to take notice. Ever-increasing demand from the auto industry, even from automobile makers that have historically shied away from electric vehicles, has meant that the industry’s demand for lithium is beginning to outpace supply. In just the first quarter of this year, prices for lithium were up 47% from the average price in 2015. Tesla’s competitors, such as the Warren Buffett-backed company Build Your Dreams (BYD) in China, are surely making their own moves on the market for lithium. As such, one can expect global competition for lithium to only increase in the years to come.
What Does Lithium Mean to Investors?
With all of this in mind, investors may wonder whether they ought to themselves take a closer look at the lithium market. There are a few promising signs indicating that those who are willing to take the time to understand the market for this metal could reap considerable rewards. For one thing, there is enormous potential for growth for those companies producing electric cars. Completely electric cars account for less than 1% of all vehicles being driven worldwide. Given the promising early returns by companies such as Tesla, one can expect this market share to drastically increase in coming years. With any commodity such as lithium, of course, one is right to be concerned about the emergence of a replacement. Essentially, should investors worry about moving towards lithium when a scientific development could mean that the metal would lose the high demand it is currently enjoying? The good news for the moment is that in this particular sector, there is no sense at the moment of lithium falling out of style. While the structure of lithium batteries is being continuously improved in order to maximize efficiency, such as certain prototypes that use a mix of lithium and oxygen instead of lithium ions, lithium itself is very much still an integral part of of electric vehicle technology.
In sum, then, it is clear that Tesla investment in lithium is based on its importance for the burgeoning electric car industry, and it does not appear that demand for the metal will fade for this metal any time soon. In fact, the demand for lithium may not even remain limited to growth in the electric car sector: Tesla motors has also begun research on energy storage for personal homes using lithium batteries, dubbed the “Powerwall.” With enough research into the field, the likelihood of lithium being an increasingly important metal for these high-growth sectors means that it is most likely a worthy investment.