This had to be the most common question I encountered at the Total Wealth Symposium in September.
Everyone was wondering about the supposed death of oil and how anyone could possibly believe that crude was going to make a comeback…
They had a good reason for oil’s demise — electric cars.
At this year's annual Robin Hood conference, which was held virtually, the founder of the world's largest hedge fund, Ray Dalio, talked about asset bubbles and how investors could detect as well as deal with bubbles in the marketplace. Q1 2021 hedge fund letters, conferences and more Dalio believes that by studying past market cycles Read More
But while headlines are touting Barclays’ prediction that electric cars will crush oil demand by 2025, I think investors are overlooking an even bigger — and far more interesting — opportunity right now.
An opportunity that could potentially earn you double or even triple-digit gains while you’re waiting for the oil industry to collapse.
It’s Not About Oil
Electric cars are coming. I’m not questioning that.
Tesla and Elon Musk have spent the past several years teasing everyone’s imagination with promises of a beautiful, zero-emission car zipping us from point A to point B.
And Tesla isn’t the only one in the electric vehicle (EV) market.
More than 50 new pure EV models are expected to hit the market over the next four years from companies such as Daimler AG and Volkswagen. General Motors has promised 20 EVs by 2023, with two new EV models in the next 18 months.
It also doesn’t hurt that more countries around the globe are introducing regulations to sideline combustion engines in favor of zero-emission cars. The U.K. and France are banning the sale of new gas and diesel cars by 2040. China has set the goal of 10% of the cars produced by 2019 must be zero-emission cars.
But we’ve still got a lot of growing to do before the oil industry is out of business. The 2 million EVs on the road in America right now account for less than 0.2% of all light-duty vehicles.
And while estimates of EVs accounting for one-third of the market by 2040 could cut 9 million barrels per day of oil demand, we have to remember something important: That’s more than 22 years away!
There could be a lot of interesting changes in the oil market between now and 2040 … but I’m more interested in the bull market happening right now thanks to the zero-emissions movement.
The Common Link
The key thing that all EVs have in common is the battery. And right now, we could be facing a supply crunch.
Volkswagen reported that it expects to need 200 GWh of battery-cell production by 2025 and that’s just one carmaker.
Meanwhile, Benchmark Mineral Intelligence states that there is only 266 GWh of new battery capacity in the worldwide pipeline through 2020.
We’re going to need a lot more batteries to keep up with demand and that’s going to drive up the demand for the key minerals used in those batteries, such as lithium.
In Matt Badiali’s article on June 2, he stated:
You see, lithium offers high-performance batteries. We’ve all owned lithium batteries if we’ve owned any cordless tools. Lithium-ion batteries are among the best-performing batteries available.
However, supplying lithium batteries for cellphones, watches and cordless drills isn’t a huge market. Electric cars, on the other hand, is a massive market. A car uses about 4,500 times the amount of lithium that a cellphone uses. According to analysts at Citigroup, electric vehicles consumed 15,000 tons of lithium in 2015. By 2025, the car industry will consume 136,000 tons.
Lithium, though, isn’t a commodity that you can directly invest in like many other commodities. However, Matt pointed out one of the players making some serious gains thanks to its exposure to lithium is
According to Matt: “Regardless of how you play it, you should own some lithium. This bull market will continue through 2017 and well into 2018. Regardless of how you feel about electric cars, if you want to make money … get on board.”
You’ve still got time to make a profit on growth in the lithium space, but remember that it’s not the only key mineral in the creation of batteries and there’s still more demand to hit as the EV market growth continues to skyrocket.