Lithium-Powered Profit Potential

I have to admit … the electric cars Tesla Motors (TSLA)produces are pretty darn cool.

Tesla cars don’t just look fast; they are fast!

The Tesla Model S can go from zero to 60 mph in a stunning 5.9 seconds and travel up to an impressive 319 miles on a single charge.

The basic Tesla Model S isn’t that expensive by luxury car standards with a MSRP of $69,900. However, that price tag can quickly escalate to $100,000 with various add-ons and luxuries.

By penny-pincher "Tony" standards, that is a ridiculously high amount to pay for any car, let alone an electric car …  so you won’t see one of these in my driveway anytime soon.

However, there’s some very investable technology in these cars that I’m very eager to take advantage of.

Tesla shares went public in June 2010 at $17. They have since taken off like a rocket — currently trading in the $200-plus range, thanks to the company’s latest quarterly earnings report.

Both the Wall Street and green energy crowd were impressed, not so much because of gains — because there weren’t any — but because of higher-than-expected production numbers.

Tesla reported a 17% increase to 7,579 cars in the second quarter and says it is on track to produce 35,000 Model S cars by the end of the year.

While 7,579 isn’t a lot of cars, Wall Street was impressed because Tesla has struggled to meet demand in the past.

Tesla confirmed that it broke ground for a $5 billion "Gigafactory" in Reno, Nevada. This new factory isn’t to build Tesla cars, but rather to produce the batteries that powers Tesla cars.

Shifting gears (sorry for the pun), perhaps the most profitable way to invest in electric cars is not through Tesla but instead from the industry that makes batteries possible. I’m talking about lithium.

Lithium-Powered Profit Potential

Lithium may be one of the most-valuable natural resources of the new electronic world and has unique and extremely valuable characteristics.

  • Lithium has such a low density that it floats on water and can be cut with a butter knife. When mixed with aluminum and magnesium, it can form lightweight alloys that produce some of the highest strength-to-weight ratios of all metals.
  • Lithium tolerates heat better than any other solid element and doesn’t melt up to 356 degrees.

  • Lithium batteries offer the best weight-to-energy ratio, making lithium batteries ideal for any application where weight is an issue; such as portable electronics.
  • That same high energy density and low weight characteristic makes lithium batteries the best choice for electric/hybrid vehicles due to car gas mileage. A car’s biggest enemy is weight.
  • Lithium has a very high electrochemical potential, meaning that it has excellent energy storage capacity.

Lithium is a key mineral of the future but there are limited ways to invest in it.
Unlike other commodities, there is no vehicle to invest in the physical metal.

On top of that, few options exist to invest in it because the market is dominated by only a handful of producers: Chemical & Mining Company of Chile (SQM), FMC Corp. (FMC), privately held Talison Lithium and Rockwood Holdings (ROC).

The Chemical & Mining Company of Chile is primarily a potash fertilizer company; FMC Corp. is a diversified chemical producer with a less than 15% of its revenues from lithium, and Talison is a privately held Chinese company.

This leaves Rockwood Holdings as the purest play on lithium by a wide margin with close to 50% share of the global lithium market. It is the OPEC of lithium. It’s also $80 a share right now … a lot cheaper than Tesla — the car and the stock!

Of course, timing is everything so I’m not suggesting that you rush out and invest in lithium or Rockwood Holdings tomorrow. What I am suggesting is that there are several ways to invest in electric cars other than Tesla that are a lot less volatile than buying TSLA itself.

Best wishes,
Tony Sagami

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Posted 08-21-2014 1:40 PM by Tony Sagami
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