iNVEZZ.com Friday, February 28: Tesla Motors announced on Wednesday it would build the world’s biggest battery factory at the cost of $5 billion (₤3 billion), which would allow it to sell 500,000 vehicles a year. The news gave a boost to the Global X Lithium ETF (NYSEArca:LIT), lifting it by 4.40 percent to $14.00.
Tesla has managed to raise $2 billion (₤1.2 billion) from the largest US convertible bond sale in more than two years after increasing the size of its offering due to robust investor demand. The proceeds will be used to finance the ‘Gigafactory’, which will employ up to 6,500 people and cover as many as 1,000 acres, including solar and wind farms to supply its power needs. The facility will manufacture powerful and expensive lithium-ion batteries to be used in Tesla’s Model S and other future vehicles. The company has explained it needed its own production to meet expected demand and reach the cost targets required to offer a more affordable car.
“This has a huge impact beyond Tesla,” said Harley Shaiken, a labour economist at the University of California, Berkeley. “It gives enormous legitimacy to battery production and the future of the electric car because that lies in the battery. It’s high stakes, high technology.”
Tesla plans to unveil its third generation vehicles with a price target of about $35,000 in the next three years. The company has already agreed to purchase 1.8 billion lithium-ion cells from Panasonic, which is enough for about 250,000 vehicles. If the third generation vehicles create additional demand, then the planned ‘Gigafactory’ will be on hand to provide the needed supply.
With the expected surge in demand for lithium, the major lithium producers stand as the major beneficiaries. There are three lithium suppliers that account for the majority of the metal’s supply – Sociedad Quimica y Minera, FMC Lithium and Rockwood. Investors who want to accumulate a position in these companies can do so through the Global X Lithium ETF, which provides substantial exposure to all three of the stocks.
**Global X Lithium ETF (NYSEArca:LIT)**
The ETF seeks to mimic the performance of the Solactive Global Lithium Index, which tracks the shares of global companies involved in the lithium industry. The fund has net assets of $46.37 million and a total expense ratio of 0.75 percent. Its top 10 holdings account for 80.05 percent of the total assets with the top five being FMC Lithium (20.18 percent), Rockwood (18.65 percent), Sociedad Quimica y Minera (6.81 percent), Panasonic (5.70 percent) and Johnson Controls (5.62 percent). LIT returned -9.12 percent to investors last year but is up 7.63 percent so far in 2014.
**As of 13.50 UTC Global X Lithium ETF buy at $14.10.**
**As of 13.50 UTC Global X Lithium ETF sell at $13.90.**