Mr. Market is smiling upon electric car manufacturer Tesla Motors Inc (NASDAQ:TSLA). The company’s stock has had an incredible run-up in 2013 as Tesla has seemingly left years of losses in the dust by posting very impressive numbers in the most recent fiscal quarter.
Some investors are most likely seeking a more secure investment that can still ride on Tesla Motors Inc (NASDAQ:TSLA)’s success. I believe that the lithium industry is a great way to indirectly invest in Tesla. The lithium market will only increase if Tesla does succeed but would still be strong if Tesla Motors Inc (NASDAQ:TSLA) falls. The technological sector as a whole will most likely continue to demand more lithium over the long term, which adds appeal to investing in specific lithium companies as well as the lithium exchange traded fund (ETF) Global X Lithium ETF .
Lithium is an important mineral in new technological innovations, including Tesla electric cars. The element is currently used in a wide array of applications that impact us every day.
Based on the analysis given so far, it would appear that lithium would be a very strong, diversified investment. But, in many respects, the lithium industry is still in its formative years. Commodities such as gold, silver, oil, and lithium have been hurt by global economic headwinds. There has been quite some controversy over lithium ion batteries, both in Tesla cars as well as in The Boeing Company (NYSE:BA) jetliners. The industry is not fully mature yet. While there will be some great winners in the field, there will most likely also be some outright outrageous losers. This makes investing in individual lithium companies and companies reliant upon lithium a risky bet in today’s uncertain world. This risk is reflected in the price of Global X Lithium ETF:
This ETF is intended to reflect the performance of the lithium industry overall, so the downward trend is indicative of how the whole industry is performing.
Tesla and The Boeing Company (NYSE:BA) will help lithium
Tesla Motors Inc (NASDAQ:TSLA) and The Boeing Company (NYSE:BA) are two companies that continue to innovate and manufacture quality products. Both companies have issues, but both companies are in strong industries and use lithium in a way that benefits both consumers and investors.
Although Tesla appears to be doing very well, the main issue I have with the company is the frothiness of its shares. The stock price has skyrocketed up to levels where the stock is currently in danger of being overbought. Thus, Tesla’s shares might come back down to earth after all of the excitement quiets down. The company’s shares will eventually come back down because of having to fight an uphill battle against economics of scale advantages held by larger American auto manufacturers such as Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM), and Chrysler. Tesla Motors Inc (NASDAQ:TSLA) will also continue to deal with problems with its lithium batteries supposedly not holding a charge well. As opposed to Boeing and the Global X Lithium ETF, Tesla unfortunately does not sport a dividend payment as the company has just started to become profitable.
For The Boeing Company (NYSE:BA), as aircraft demand increases, jobs and other related industries will also increase as well. The company’s stock has a healthy price to earnings ratio (P/E) of around 17. The entire aircraft industry has been doing well even as the global economy has slowed. Lithium, which is integral to the production of airplane batteries, will only be used in larger and larger quantities as airplane and electric car production continues to go up. Boeing also has a very nice dividend, better than the Global X Lithium ETF.
The best way to flip the lithium coin
While there are some major pluses to getting into companies reliant upon lithium, there are also risks. There is no way to directly invest in actual lithium. So, how should investors seeking to add lithium to their portfolio diversify and hedge against potential pitfalls? The answer is to invest in the Global X Lithium ETF.
Global uncertainty makes the Global X Lithium ETF the ideal investment for the lithium market. The ETF has spread out its holdings over twenty companies around the world that are primarily engaged in some aspect of the lithium industry, such as lithium mining, exploration and lithium-ion battery production. These twenty companies are some of the strongest contenders poised to benefit from worldwide expanded lithium usage. Instead of just placing all of your money on one stock, the Global X Lithium ETF gives an investor more bang for his buck by giving twenty chances of success instead of only one. The odds are stacked in your favor if you are in the Global X Lithium ETF as lithium usage continues to expand.
The article Two Sides of the Lithium Coin originally appeared on Fool.com and is written by Evan Buck.
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