You may also be interested in our Comprehensive Guide to Metals and Mining.
Battery metals are a group of metals that are key to the production of batteries. These include lithium, cobalt, nickel, manganese, graphite, and vanadium. As demand for electric vehicles (EVs), renewable energy storage, and other battery-powered technologies continues to rise, investing in battery metals has become an attractive option for many investors.
There are various ways to invest in this sector, including in stocks and funds trading battery metals mining companies. One way to invest is through a Battery Metals ETF or a Battery Metals Fund. These offer exposure to a diversified portfolio of relevant stocks.
Keeping up with industry news and understanding market trends can also help investors make informed decisions when investing in the segment. Our researched article aims to help you get started.
A Quick Guide to Battery Metals
Battery metals are used in multiple industries, including aerospace and defense. Their main use case is electric vehicles (EVs), along with energy storage and electronic devices.
An electric vehicle (EV) uses rechargeable batteries, like the ones in phones or laptops, but bigger. These batteries need expensive metals like lithium, nickel, manganese, and cobalt for the cathode.
One of the most common types of batteries, NMC 8-1-1, has eight parts nickel, one part manganese, and one part cobalt. Depending on the manufacturer, the acronym used is sometimes NCM.
The acronyms refer to the combination of battery metals being used, and the numbers relate to how many parts of each. There are also other types of batteries like NCA and LFP. NCA stands for nickel-cobalt-aluminum, and LFP stands for lithium-iron-phosphate.
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Lithium
Lithium, the lightest metal, is the most well-known of battery metals. It has seen its popularity soar in step with society’s increasing demand for electronic devices. This is increasing interest in investing in lithium companies.
Now EV companies are increasingly seeking ways to secure long-term supplies of lithium and other battery metals. There are concerns that global lithium supplies can keep up with the demand for EVs.
China is a major producer of lithium, and smaller exploration companies have been taking on a greater role in the quest to produce lithium.
It is expected that it will be difficult to balance the supply and demand of metals used in EV batteries by 2030. This is because most existing battery technologies rely heavily on lithium, which is in limited supply.
To achieve a 7% global penetration of EVs, production levels from 2022 would need to increase by at least six times between 2023 and 2030. However, it takes a long time to develop new mining projects, typically 15 to 20 years, so it will be hard to meet demand with existing resources and current levels of lithium recycling1.
Cobalt
Cobalt is a hard, silver-gray metal, often mined as a by-product of copper and nickel mining. Along with its role in making lithium-ion batteries, cobalt is used to make alloys for jet engines and turbines, as well as magnetic steels.
There are concerns about the security of the cobalt supply chain as most reserves are in The Democratic Republic of Congo (DRC) and Russia. Additionally, investment in cobalt production has been limited.
The goal is to reduce the cost of battery production and minimize the environmental impact of mining cobalt, which can be harmful to people and the planet.
EV manufacturers such as GM and Tesla are trying to reduce their use of cobalt in battery production. Tesla is using LFP (lithium iron phosphate) batteries to avoid using cobalt altogether.
To invest in cobalt, you can directly purchase the metal itself. This can be done through futures contracts, which enable the purchase of specific amounts of cobalt metal. Another option is to invest in cobalt futures through options contracts, which allow investors to speculate on the future value of cobalt as a metal. Alternatively, you can buy shares in a mining company that produces cobalt, such as Glencore (LON: GLEN).
Graphite
Graphite is a good conductor of electricity and makes up the biggest proportion by weight in lithium-ion batteries, accounting for 20-30% of each battery. However, because of losses during manufacturing, it requires 30 times more graphite than lithium to produce the batteries.
Around 70% to 80% of the world's graphite is produced in China, and all the natural graphite used in lithium-ion batteries comes from China. This has led the EU and the US to declare graphite a supply-critical mineral.
You can invest in graphite stocks via publicly traded mining companies such as Graphite One Inc. (G1) (TSX-V: GPH) (OTCQX: GPHOF), GrafTech International Ltd (NYSE: EAF) and NanoXplore Inc (OTCQX: NNXPF). Or there are graphite processing and manufacturing companies such as SGL Carbon SE (OTC: SGLFF). Alternatively, you could invest in graphite through an ETF or derivatives.
Nickel
A European Commission Joint Research Centre report2 suggests that demand for nickel will increase by 2.6 million tons globally by 2040. It also highlights the importance of producing high-purity nickel sulfate, which is needed to make batteries. The report suggests that using recycled nickel from used batteries will become increasingly important in the future, as there may be a limited supply of primary nickel. It also predicts that there may be a European supply deficit in 2027 if a sizeable recycling industry is not established.
Like other battery metals, you can invest in nickel via an ETF, derivatives products or publicly traded nickel mining stocks.
Manganese
Manganese is a hard, gray-white metal that looks like iron. It can be used to make different things like batteries, aluminum cans, and chemicals that kill fungi and pests.
Most of the world's manganese is used to make steel and cast iron. Manganese is also used in making some types of rechargeable batteries. People think that the need for manganese will grow as more people use new energy sources.
Vanadium
The majority of vanadium is used to make steel stronger. However, vanadium is also used in batteries that store energy. These batteries are big and are mainly used in industries. The good thing about these batteries is that they don't lose their ability to store energy for at least 20 years.
China is the largest producer of vanadium in the world, followed by Russia and South Africa.
Other Battery Metals
Along with these metals mentioned above, aluminum, copper, zinc, and lead are also used in the production of various types of batteries, including lithium-ion batteries, lead-acid batteries, and nickel-metal hydride batteries.
The Critical Role of Battery Metals in the Transition to Green Mobility
The 2020 global pandemic highlighted the fragility of global trade, particularly in raw resources and international supply chains. The war in Ukraine compounded this as the supply of essential commodities like grains, gas, and metals used in modern industries was further constrained.
Moreover, the transition towards green mobility, a vital part of the global effort to reduce carbon emissions, requires large quantities of special metals. These metals are used in the production of batteries for various industries.
Navigating the Complexities of Investing in Battery Metals
However, it is not as simple as choosing a battery metal stock and investing in it. The way these resources are extracted, produced, sold and shipped must also be looked at.
Companies operating in this space must carefully consider their environmental, social and governance policies to ensure they are compliant with public expectations. This includes ensuring that they comply with relevant laws and regulations, implementing sustainable practices, and ethical behavior. That’s because the company may not succeed if it doesn’t.
Furthermore, soaring demand creates implications for the production, recycling, and pricing of these battery metals. Reusing and recycling batteries can reduce the global demand for raw materials and associated impacts on remote and vulnerable communities and also unlock new domestic value streams and job opportunities while reducing the cost of batteries.
Battery Metals Market
There are several key players in the battery metals market, including mining companies, battery manufacturers, and technology companies. Some of the major players today include:
Mining Companies
Albemarle Corporation (NYSE: ALB) - Albemarle is the only North American lithium producer. It operates an active lithium mine in Silver Peak, Nevada.
Sociedad Quimica y Minera de Chile (NYSE: SQM) – is a Chilean company that produces lithium, potassium, and iodine for a variety of industries, including battery manufacturing. It recently acquired a lithium refining plant in China.
Glencore (LON: GLEN) – is a multinational mining company that produces cobalt, copper, nickel, and zinc, all of which are important metals for battery production. The company markets over 60 responsibly-sourced commodities.
Rio Tinto (NYSE: RIO) – is the world’s second-largest miner. It produces copper, aluminum, lithium, and iron ore, all of which are used in battery production. The company forecasts the energy transition will drive commodity demand growth at a rate of about 3.7% annually to 2035.
Lithium Americas (NYSE: LAC) – LAC is developing the largest known lithium deposit in the US at its Thacker Pass mine in Nevada. It is not yet generating revenue and is, therefore, a speculative investment.
Battery Manufacturers
CATL (SHE: 300750) - CATL, the world's largest battery maker, is expanding its global presence by building factories overseas and licensing its technology to Ford while also offering cost reductions to Chinese automakers to stay ahead of domestic competitors such as CALB and EVE Energy. There are geopolitical tensions around CATL's deal with Ford, with both the US and China voicing concerns. CATL has previously secured contracts with Tesla, BMW, and Volkswagen.
BYD Company Limited (OTC: BYDDF) - a Chinese automaker and battery manufacturer that has partnerships with several major automakers and has been expanding its global production capacity. BYD manufactures batteries for both its own use and for other companies, in addition to producing products for rail transportation, commercial vehicles, and various electronics. Berkshire Hathaway is a long-time investor in BYD.
Technology Companies
Tesla (NASDAQ: TSLA) – is a pioneer in the EV market and is heavily invested in battery technology. It has the largest battery production operations in the United States and is constantly looking to improve them. Tesla is also rumored to be looking to acquire battery metals companies involved in mining the raw materials.
Apple (NASDAQ: AAPL) - is indirectly involved in battery metals through its supply chain. The company relies on a vast network of suppliers to source the raw materials for the components that go into its products, including the batteries used in its iPhones, iPads, and other devices.
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Battery Metals ETFs
As metals and mining is a notoriously risky sector to invest in, some investors prefer to diversify their holdings and reduce risk by opting for an ETF or fund.
A Battery Metals ETF trades on a stock exchange like a stock and can be bought and sold throughout the trading day. It generally tracks an underlying index or benchmark and aims to replicate its performance.
On the other hand, a Battery Metals Fund is typically a mutual fund or a hedge fund that is managed by an investment manager, who makes decisions about which assets to buy and sell on behalf of the investors in the fund. ETFs tend to be cheaper to invest in as they are passively managed.
Here are some of the more popular battery metals ETFs and funds:
Global X Lithium & Battery Tech ETF (NYSEARCA: LIT)
First Trust NASDAQ Clean Edge Green Energy Index Fund (NASDAQ: QCLN)
ARK Autonomous Technology & Robotics ETF (BATS: ARKQ)
L&G Battery Value-Chain UCITS ETF (LON: BATT)
First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (NASDAQ: GRID)
Global X Battery Tech & Lithium ETF (ASX: ACDC)
WisdomTree Battery Solutions UCITS ETF (LON: VOLT)
Amplify Lithium & Battery Technology ETF (NYSEARCA: BATT)
Overall, battery metals investing has gained significant attention in recent years, and it presents a promising opportunity for those looking to invest in the future of sustainable energy.
Interestingly the projected demand for battery metals is changing the way companies invest in this sector. Car companies have begun entering the mining industry to secure materials, competing with big metals producers, and making direct investments in mining companies primarily to secure offtake agreements.
If you are interested in investing in battery metals, it's important to research and understand how to invest in the sector. Investing involves risk, and the metals and mining industry can be volatile.
Article Sources
1. Deloitte, Fueling the Future of Mobility - Battery Metals Will Not Be For Everybody.
https://www2.deloitte.com/content/dam/Deloitte/fr/Documents/sustainability-services/Battery_Metals_and_Decarb_a_tight_Supply_Demand_Balance.pdf
2. European Commission, Joint Research Centre, Fraser, J., Anderson, J., Lazuen, J., et al., Study on future demand and supply security of nickel for electric vehicle batteries, Publications Office, 2021, https://data.europa.eu/doi/10.2760/212807