Tesla’s gigafactory and recent M&A boosting lithium sector to new highs

Jeb Handwerger - Gold Stock Trades | July 27, 2014 | 8:18 pm Battery Metals Lithium Rare Earth 

Summary

  • Demand is soaring for lithium as its use is growing rapidly in smartphones, tablets and electric vehicles.
  • Lithium Sector on verge of a major 2014 52 Week High Breakout as Tesla announcement to build Gigafactory sparks major interest in sector.
  • Major M&A activity is taking place with the recent $6 billion merger between Albemarle and Rockwood. This may be just the beginning.
  • One of the largest chemical deals in history. Demand is growing fast for the electrification of the automobile.

Demand is soaring for lithium, which is used in rechargeable batteries for smartphones, iPads and electric vehicles. Weeks ago I wrote in this article that “Despite the lithium sector being in a correction for six weeks, attention should be paid to this dynamic sector which may be just on the verge of breaking out higher.” The lithium ETF (NYSE:LIT) was trading below $13 when that article was written testing the 200 day moving average.

Now the lithium ETF is poised to make a powerful breakout at new 52 week highs at $14. A game changing event occurred last week when Albemarle (NYSE:ALB) paid over $6.2 billion to buy the world’s largest publicly traded lithium producer Rockwood Holdings (NYSE:ROC).

This is one of the largest chemical deals and the lithium industries biggest M&A transaction in history. Demand has doubled in the past decade as lithium ion battery use has grown in mobile technology. Growth in the lithium sector has been far outpacing other sectors. Some experts believe demand could even grow faster over the next decade especially as electric vehicles gain market share.

The recent M&A news combined with Tesla’s (NASDAQ:TSLA) announcement that they will build a “gigafactory” in the Southwestern US makes me believe that consumption will soar over the coming decade and domestic lithium assets could rise exponentially in value. Remember each electric vehicle contains more than forty pounds of lithium.

The key for investors is finding potential sources of the raw material in North America. Don’t forget the Chinese paid over $625 million for Australia’s Talison. I expect further deals to be announced by one of the major producers such as Rockwood , Sociedad Quimica y Minera (NYSE:SQM) and FMC Corp (NYSE:FMC) as they are all looking to capitalize on the growth of this sector. These three stock make up over 43% of the lithium mining ETF. Look for these major companies to acquire lithium mining assets in North America trading at significant discounts.

Disclosure: Author does not own stocks mentioned.

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Comments

  • Paid Attention in Chemistry101

    How do you come up with 40lbs of Lithium per vehicle? Li-Ion rechargeable batteries only use Lithium salts as a dissolved component in their electrolyte fluid, and are roughly 1% Lithium by weight. EV battery packs are heavy, but they certainly don’t weigh 4000lbs. Where else is the Lithium used? Alloy with Aluminum in the frame or something?

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