How To Invest in Electric Car Batteries (LIT and BATT Review)
Switching from fossil fuels to battery-powered cars is critical in fighting climate change. And there are ways to invest in electric cars beyond buying Tesla stock, for example, through a battery exchange-traded fund (ETF).
SustainFi July 1, 2021
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Why should you invest in batteries?
It is 2021, and electric cars are still the talk of the town when it comes to sustainable, efficient transportation. Transportation is responsible for 16 percent of global greenhouse-gas emissions. To fight climate change, we must lower emissions from cars as soon as possible. In addition, electric car buyers like not having to buy gas, less noise, and fewer maintenance requirements.
The biggest players in the car manufacturing industry are putting out their latest models for the growing consumer base. Tesla is still leading the way, but traditional manufacturers are trying to catch up. According to UBS Research, electric cars are expected to represent nearly half of all the vehicles produced globally by 2030, up from 3-4% today.
Most electric cars run on lithium-ion batteries. The technology was invented in the 1980s and commercialized by Sony in 1991.
Batteries are the most expensive components of electric cars, accounting for 30% to 40% of their cost. As the electric car momentum continues, there has never been a better time to invest in batteries.
How do you invest in lithium batteries?
There are two ETFs, Global X Lithium & Battery Tech ETF (LIT) and Amplify Lithium and Battery Tech ETF (BATT), that let you grab shares in battery manufacturers and lithium miners. ETFs are collections of stocks that trade on stock exchanges, and you can easily buy or sell them through your brokerage account or an investing app like Public.
Lithium is a material that is central to making lithium-ion batteries, so much so that Tesla CEO Elon Musk announced that he wanted to start mining lithium in the Nevada desert to meet supply constraints. Though lithium-ion batteries are also used in laptops and cell phones, in the future most lithium will be used for electric car batteries.
|Fund||Ticker||Expense Ratio||Assets ($m)||Holdings||MSCI Rating||Sustainalytics Rating|
|Global X Lithium & Battery Tech ETF||LIT||0.75%||$3,560||40||BBB||3 / 5|
|Amplify Lithium & Battery Technology ETF||BATT||0.59%||$197||87||A||1 / 5|
Learn more about the two ETFs that invest in lithium and batteries.
Global X Lithium & Battery Tech ETF (LIT)
- Assets under management: $3.56 billion
- Expense ratio: 0.75%
Launched in 2010, the Global X Lithium & Battery Tech ETF (LIT) is the largest lithium and battery ETF. It tracks the Solative Global Lithium Index and invests in roughly 40 companies involved in lithium mining or lithium battery production. LIT invests globally, and China is the largest region (45% of assets), followed by the U.S. (22%).
The fund’s holdings are very concentrated. Its top ten investments are nearly 60% of its assets and include lithium miners Albemarle (ALB) and Ganfeng Lithium (SHE:002460) and battery manufacturers CATL (SHE:300750) and BYD (BYDDF). Albemarle alone is 12% of LIT’s asset base. LIT is market-cap weighted, meaning that the ETF assigns a higher percentage of assets to the largest companies.
The fund costs 0.75% ($75 annually on a $10,000 investment). The ETF has been volatile in the past, though it had a great run over the past year, returning 165%.
Amplify Advanced Battery Metals & Materials ETF (BATT)
- Assets under management: $197 million
- Expense ratio: 0.59%
Launched in 2018, BATT invests in battery materials suppliers and battery manufacturers globally. Electric vehicle manufacturers are also included. The top three countries are China, the U.S., and Australia.
BATT has 90 holdings, more than double that of LIT, and each investment is capped at 7% of the fund. As a result, the ETF is less concentrated than LIT, and the top ten holdings are about 44% of assets. The top ten stocks include battery manufacturers CATL (SHE:300750) and Samsung SDI (KRX:006400), electric car companies Tesla (TSLA) and Nio (NIO), and miners Glencore (GLEN) and Norilsk Nikel (NILSY).
BATT has a 0.59% expense ratio. The fund returned 96% over the past year, though it’s been volatile before that, and is actually down 12% since the fund launched in 2018.
💰 Our Pick
You might think that BATT and LIT ETFs would be similar, but, in fact, less than 40% of their holdings overlap. BATT has much more exposure to electric cars like Tesla and Nio and to diversified mining companies like Glencore. In contrast, LIT invests more in pure-play lithium stocks like Albemarle. We think that LIT is the better choice for investors who want a focused lithium-ion battery exposure. While past performance doesn’t guarantee future performance, LIT has done much better than BATT over the past three years.