It's 1967. In "The Graduate," the experienced Mr. McGuire leans over to whisper advice to the inexperienced Benjamin (played by a young Dustin Hoffman).
"I just want to say one word to you. Just one word."
"Yes, sir," replies the polite Benjamin.
"Are you listening?"
"Yes, I am," Benjamin assures him.
"Plastics."
"Exactly how do you mean?"
Write that same scene today and McGuire would whisper "Batteries." Especially if he were a savvy investor who followed the trends in the global auto industry.
You've undoubtedly read the stories about General Motors' (MTLQQ, news, msgs) electric car, the Chevrolet Volt, scheduled to go on sale in 2010. That car -- with its $40,000 price tag and GM's claims of 230 miles per gallon -- is either a gimmick designed to convince the U.S. consumer and the Obama administration that the company has turned over a new leaf or a portent of how much things are changing in Detroit.
Whichever it is, the Volt is only one drop in a wave of hybrid electric and plug-in electric cars that is going to wash over the global auto market in the next two decades. In June 2008, Deutsche Bank counted 75 new hybrid electric models set for sale by 2011. And the number has only gone up since then. The National Highway Traffic Safety Administration projects that hybrid cars could take as much as 20% of the U.S. auto market by 2015, up from just 2% in 2007. In Europe, according to marketing company J.D. Power, hybrids and electric cars could account for 50% of the market by 2015, up from 2% in 2007.
And every one of those hybrid and electric cars will need a rechargeable battery. Most of those new batteries will be lithium ion batteries. The automotive market for lithium ion batteries is close to zilch today. Hybrids such as Toyota's Prius run on older nickel metal hydride battery technology. (Conventional car batteries use a lead-based technology.) But lithium ion technology, with its lighter weight and greater ability to stand up to recharging after being completely discharged, is the likely technology of the future.
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But just how do you invest in this coming wave of automotive lithium ion batteries? All up and down the battery food chain, that's how -- from the companies that mine lithium to the companies that make the key pieces that form the guts of the batteries, to the battery makers themselves.
The Obama administration is pumping money into batteries, too. For a list of some of the companies that divvied up the first $2.4 billion in government money, see my blog update.
Option 1: The miners
The vast majority of lithium now comes from salt lakes in Chile (about 65%), Argentina and Nevada, and from mines in China.
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But that's changing quickly. The global demand for lithium is projected to grow from about 11,000 metric tons in 2012, according to Deutsche Bank, to almost 90,000 metric tons in 2020. Getting to anything like that figure is going to require a huge increase in supply. (It takes about 6 pounds of lithium to make a car battery.)
Big increases in supply look like they'll come from China and (maybe) Bolivia. Both countries have announced plans for new production from salt lakes.
The roster of publicly traded lithium producers is pretty small. The two I'd concentrate on are:
- Sociedad Química y Minera de Chile (SQM, news, msgs). The company produces about 65% of the lithium that comes out of the Salar de Atacama region of Chile. Recoverable reserves there make up 20% of the world's known reserves.
- FMC (FMC, news, msgs). The company produces lithium from Argentina's Salar de Hombre Muerto region, where recoverable reserves are estimated at 11% of global known reserves.
Other lithium producers include U.S. company Rockwood (ROC, news, msgs), Australia's Admiralty Resources (ARYRY, news, msgs) and China's CITIC Pacific (CTPCY, news, msgs).
Continued: Other investing options
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