Investing in emerging technologies can often involve “picks and shovels” plays that are indirect ways to profit from the adoption of a certain technology. Take electric cars as an example. One investing thesis has been that Elon Musk’s gigafactory that builds lithium batteries to power electric cars is going to need a isht load of lithium. The interesting thing about lithium is that it doesn’t trade on commodity exchanges like any other metal such as copper or silver. In fact, you’ll have a hard time even tracking down the price of lithium. Regardless, we would expect that the demand for lithium should increase the price for lithium which should benefit lithium miners. As it turns out, 3 lithium miners produce 90% of the world’s lithium so investing in all three companies should be a no-brainer, right?
Not necessarily. In an article we published last year we talked about how the dominant lithium miners only derive a small fraction of their overall revenues from lithium. It’s kind of like the fallacy that buying shares of Google will give you exposure to every technology under the sun. When we published our first article on investing in lithium, the revenue contributions made by lithium production for these 3 mining stocks were as follows: