Electric vehicles have been all the rage lately, and investors are looking to cash in on the trend away from internal combustion-powered cars and trucks. Elon Musk has been a huge proponent of EV adoption, and the boom in shares of Tesla (TSLA 4.96%) over the past decade stands as a testament to his appeal as an advocate for the transition in the auto industry.
Musk recently made a simple statement that carried a lot of weight. Indeed, what Musk said was so powerful that it lifted shares of several stocks on Monday morning. Tesla stock actually opened lower, but the gains elsewhere showed that there's more than one way for investors to profit from the ongoing shift toward EVs.
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Charge!
The rather innocuous comment that Musk made was a simple plea to potential suppliers for Tesla. He explained in the quarterly conference call following the electric vehicle pioneer's latest financial report that Tesla was working to build out its lithium refinery operations in Corpus Christi and a cathode refinery outside Austin. Yet Musk doesn't really want Tesla concentrating on those areas. As he noted: "We're begging you. We don't want to do it. Can someone please? Like, instead of making a picture-sharing app, please -- try in lithium, mining and refining."
Shares of lithium stocks were the big beneficiaries of Musk's latest comments. Sociedad Quimica y Minera de Chile (SQM 0.56%) had the largest gains Monday morning, climbing 6% in the first half-hour of trading on the day. Albemarle (ALB -0.25%) also showed significant gains, rising nearly 5%.
Stocks elsewhere in the sector posted slightly smaller increases but still did well. Livent (LTHM) was up more than 3%, and Piedmont Lithium (PLL 2.79%) also managed to climb nearly 3%. Lithium Americas (LAC) also gained ground.
Multiple bottlenecks
Clearly, for the entire auto industry to move toward electrification, there will need to be a lot more vehicle batteries available. Based on current technology, that will require abundant lithium resources.
Where the potential crimps in the supply chain will occur, however, depends on who you ask. In Musk's view, raw lithium is relatively common worldwide. As a result, the Tesla CEO called on entrepreneurs to focus their efforts on building out refining capacity to put that lithium into a form that his company and fellow EV automakers can use for producing batteries.
Others believe that mining capacity is really the key ingredient for long-term EV success. At this point, major automakers like Ford Motor (F 0.69%) and General Motors (GM 1.20%) are working hard to ramp up battery production in order to ensure they can make enough EVs to compete against Tesla and other earlier-movers in the industry. Even if there were enough refining facilities available to meet that demand, some lithium miners just don't think that the current level of development is adequate to provide battery-grade material to everyone who wants it right now.
How lithium miners can add value
The way that lithium mining companies respond to current demand will tell a lot about the future for the industry. For instance, Albemarle has done a great job of pulling lithium out of the ground, but it also wants to convert its own production material into battery-grade lithium. It's also spending money on research and development initiatives with an eye toward looking for advances in lithium battery technology and other areas.
In the end, lithium will be a commodity, and it will be subject to the ups and downs of supply and demand. For those companies that take full advantage of the current opportunity, however, there's more potential beyond simply providing a raw material. It will be interesting to see how Albemarle and others choose to seek to move forward with future investment in the space.
