One of the biggest stories in the news for the past year or two has been the rising popularity of electric vehicles. This has caused the stock prices of some companies in the sector, such as Tesla, to soar to dizzying heights. However, there is another way for people that believe in the growth of electric cars to invest in the sector, and it's a way that doesn't involve buying highly followed and high-priced stocks in unprofitable companies.

That way is to invest in those companies that sell the raw materials needed to make electric cars. One of these materials is lithium, which is a vital component of the batteries that go into electric vehicles. The biggest producer of lithium in the world is a Chilean company, Sociedad Quimica y Minera (NYSE:SQM), and it will be the focus of this article.

About Sociedad Quimica y Minera
Sociedad Quimica y Minera is a Chilean chemical company that is one of the world's leading producers of specialty plant nutrients, iodine, and lithium. Because of this, the company is not a pure play on the growth of lithium demand. In fact, lithium is not even the company's top product as its agricultural commodities, such as potash, make up the lion's share of its business. However, the company is still the largest producer of lithium in the world, accounting for nearly 31% of the world's supply of the element. This is why the company could prove to be a good way to invest in growing demand for electric cars.

Falling stock price due to potash market difficulties
Shares of Sociedad Quimica y Minera have not had particularly strong performance over the past year or so.

The reason for this poor performance was the collapse of the Belarusian cartel. This caused potash prices to plunge all over the world. This results in lower margins for those companies that produce potash, one of SQM's main products. However, as discussed in the previous paragraph, SQM has plenty of other products besides potash; this stock price decline could present a perfect opportunity for those who want to jump in and bet on the proliferation of electric cars and handheld gadgets.

Lithium demand is up substantially and should continue growing rapidly
Worldwide demand for lithium has been growing at a very rapid pace as can be clearly seen by looking at prices for the element. Prices for lithium have tripled since 2000, making this a $1 billion per year market . The reason why we know that the market is growing is because it is demand for the element that is pushing up prices. The supply of lithium has certainly not decreased.

We could see demand for lithium grow astronomically if demand for electric and hybrid cars takes off. This is because of the amount of lithium needed to make the powerful lithium-ion batteries that power these vehicles. According to Navigant Research, the proliferation of electric cars will cause the market for lithium-ion batteries to grow more than four-fold by 2023; that would grow a $6 billion industry into a $26 billion industry. Transparency Market Research predicts even higher growth, with the battery industry growing to $33.11 billion in size by 2019.

It is quite obvious then that the lithium-ion battery market is a rapidly growing one. The demand for lithium should grow proportionally, and Sociedad Quimica y Minera should benefit from this growth.

Relatively cheap stock
The stock price of Sociedad Quimica y Minera does not appear to take this growth potential into account at present levels. At the time of writing, the company trades at a price/earnings ratio of 17.72. This is a fairly low multiple in the current market given its growth prospects. The company is also not particularly overburdened with debt, carrying a debt-to-equity ratio of 0.74. All in all, the company could be a pretty good way to bet on the growing popularity of electric and hybrid vehicles.

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Daniel Gibbs has no position in any stocks mentioned. His research firm, Powerhedge LLC, has a business relationship with a registered investment advisor whose clients may have positions in any of the stocks mentioned. Powerhedge LLC has no position in any stocks mentioned and is not a registered investment advisor. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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