Will Tesla Motors Inc’s Gigafactory Charge Up The Lithium ETF?

lithium etfTesla Motors Inc (NASDAQ:TSLA), currently a Zacks Rank #1 (Strong Buy) stock, has finally selected Nevada as the location for its massive “Gigafactory” battery plant worth about $5 billion. Though Arizona, California, New Mexico and Texas were in the race for the Gigafactory, the Nevada government clinched the deal on its $1.25 billion tax incentive proposal to Tesla for over 20 years.

While the deal awaits regulatory approval, Tesla shares are in a party mood, having hit a new all-time high for four days successively to start September. However, investors should note that the celebration is not limited to Tesla shares only, one mineral – Lithium – also greeted the deal with cheer.

The new plant will be Tesla’s first lithium-ion battery factory. Nevada possesses the lone working lithium mine in the U.S. As a result, the nation has to depend on imports to meet its Lithium needs as many auto makers use the mineral for their batteries. Apart from the Auto sector, lithium is required in cell phones, laptops, and other electronic devices as well as in the aerospace and defense sector.

With this new plant, Tesla will likely be a voracious user of Lithium. The factory’s huge capacity will let Tesla manufacture about 500,000 electric cars every year by 2020. In a nutshell, from all production aspects, Lithium will likely be in focus in the days to come.

As per Signumbox, lithium demand has been increasing at over 10% every year. Electronic gadgets are run on batteries, 95% of which are lithium based. Given this trend, an equity exposure on lithium producing companies is worth a look.

At present, there is only one way – Global X Lithium ETF (NYSEARCA:LIT) – to target this space from a global perspective. We have described LIT in greater detail below (read: Play Surging Electric Car Demand with the Lithium ETF):

Lithium ETF in Focus

The product looks to give global exposure to the broad range of firms engaged in the mining of lithium, or the development of lithium batteries. The product tracks the Solactive Global Lithium Index giving access to the largest and most liquid 22 firms around the globe.

The fund has amassed about $60 million in its asset base and trades in light volume of nearly 20,000 shares per day. This increases the total cost for the fund in the form of a wide bid/ask spread beyond the expense ratio of 0.75%.

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