Many S&P/ASX 200 Index (ASX: XJO) investors are crazy for lithium shares. And for good reason. As Global X ETFs head of investment strategy, Blair Hannon notes: "they've made a bucketload of cash out of lithium".
The asset management company is behind the Global X Battery Tech & Lithium ETF (ASX: ACDC), as well as other thematic exchange-traded funds (ETFs). Units in the ACDC ETF have nearly doubled in value since floating in 2018.
Among its holdings are shares in ASX 200 lithium producers Pilbara Minerals Ltd (ASX: PLS), Allkem Ltd (ASX: AKE), and Mineral Resources Ltd (ASX: MIN). It also holds stakes in companies involved in the entire lifecycle of lithium, including lithium refiners and battery makers.
It's perhaps unsurprising then, that Hannon is bullish on the future of lithium. Indeed, he told a recent media event that it's still "very much early days" for the white metal, continuing:
We haven't hit the tipping point globally. We're not even close to it.
So, what might drive revenues of companies involved in the battery-making metal, perhaps including those of the ASX 200 companies producing it? Electric vehicle (EV) adoption is likely to be a major factor.
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Are ASX 200 lithium shares at a 'tipping point' for revenue growth?
As Hannon points out, Australia has a "box seat" position for lithium supply, thanks to a swath of resources in Western Australia.
That's reflected on the ASX 200, with many lithium shares calling the index home.
In addition to the three major ASX 200 stocks included in the Global X Battery Tech & Lithium ETF, there are newly-crowned producers Lake Resources N.L. (ASX: LKE), Sayona Mining Ltd (ASX: SYA), and Core Lithium Ltd (ASX: CXO), as well as up-and-coming takeover target Liontown Resources Ltd (ASX: LTR), to name a few.
But Hannon argues that lithium is just part of the solution to the problem. The problem being decarbonisation – a key emerging investing thematic.
Fortunately for those mining lithium, the metal is an irreplaceable ingredient in battery-powered vehicles. And the globe is moving further and further towards a tipping point in electric vehicle (EV) adoption, according to Hannon.
Global EV sales are forecasted to grow at a compound annual growth rate (CAGR) of 14% between 2022 and 2035 as consumer demand takes off.
As per the rule of supply and demand, ASX 200 lithium shares, as well as stocks involved with other critical materials, could be on track to see their revenue soar in the coming years.
But when might we see it? Well, Hannon reckons a 'tipping point' for EV adoption could be when battery-powered vehicles represent 5% of all new car sales.
He points out that EVs reached 5% of car sales in China in 2020. The following year, they surged to represent 16% of sales. A similar pattern was said to have played out in Norway – now the leading nation in EV adoption.
Interestingly, 3.2% of new cars sold in Australia in 2022 were battery-powered. That's according to data from the Federal Chamber of Automotive Industries.
