Tesla Inc: These Other Stocks Could Provide a TSLA-like Opportunity

Like Tesla Stock? Read This

If someone told you at the beginning of this year that an established large-cap stock could double in about a month, you probably wouldn’t have believed it.

To be honest, I’d feel skeptical, too. The market has been trading like it’s at the end of a cycle, and large-cap stocks are not known for making big moves.

And yet, Tesla Inc (NASDAQ:TSLA) did exactly what many thought was impossible. TSLA stock closed at $418.33 per share on December 31, 2019. Fast forward to February 4, 2020 and it closed at $887.06. So in just over a month, the stock had more than doubled.

Since then, Tesla stock has pared some of those gains, trading at $803.40 per share at the time of this writing. But earlier investors are still laughing all the way to the bank. And they didn’t even have to get on the profit train that early. In just the past six months, TSLA stock has skyrocketed more than 230%.

Tesla Inc (NASDAQ:TSLA) Stock Chart

Chart courtesy of StockCharts.com

The best part is that TSLA stock is not the only thing that can benefit from the automaker’s booming business.

I’m talking about lithium, a metal that’s used to make batteries that power smartphones, tablets, laptops, and electric vehicles (EVs).

It’s estimated that a 70 kwh Tesla battery uses around 63 kilograms (139 pounds) of lithium carbonate. And because lithium accounts for 19% of that compound’s mass, a 70 kwh Tesla battery would need about 12 kilograms (26 pounds) of lithium.

In other words, if Tesla Inc wants to produce more cars, it needs a lot of lithium.

Production has indeed been ramping up at Tesla’s factories. In the fourth quarter of 2019, the company produced almost 105,000 vehicles, marking a new record. (Source: “Tesla Q4 2019 Vehicle Production & Deliveries,” Tesla Inc, January 3, 2020.)

In 2020, Tesla expects to deliver over 500,000 vehicles. And because of the ramp-up of its “Model 3” and “Model Y” production, the company expects its production to outpace deliveries this year. (Source: “Q4 and FY2019 Update,” Tesla Inc, last accessed February 13, 2020.)

Mind you, Tesla is not the only EV manufacturer. Other companies, including those that have been building cars powered by internal combustion engines for decades, have been entering the business too. In the U.S., there are more than a dozen EV models for sale right now.

The global EV market is projected to grow at a compound annual growth rate (CAGR) of more than 20% from 2020 to 2025. (Source: “Electric Vehicle Market Outlook – Growth, Trends, and Forecast (2020 – 2025),” Mordor Intelligence, last accessed February 13, 2020.)

Based on that projection, the demand for lithium could get a solid boost in the years ahead.

Lithium Stocks Deserve Investor Attention

No doubt, TSLA is still the hottest ticker in the EV industry, but its soaring share price has helped lift several lithium stocks as well.

For instance, Livent Corp (NYSE:LTHM) manufactures and sells lithium compounds for energy storage, specialty polymer, and chemical synthesis applications. The company has manufacturing sites in the U.S., England, India, China, and Argentina. Since the beginning of this year, Livent stock has surged about 30%.

Then there’s Sociedad Química y Minera de Chile (NYSE:SQM), one of the world’s biggest producers of lithium, potassium, iodine, and thermo-solar salts. Based in Santiago, Chile, the company’s American depositary receipts trade on the New York Stock Exchange, and their price has gone up about 17% year-to-date.

Finally, check out specialty chemicals company Albemarle Corporation (NYSE:ALB). Headquartered in Charlotte, North Carolina, this company is a leading global producer of lithium, bromine, and refining catalysts. Year-to-date, the company’s stock price has shot up about 19%.

And these are just a few examples that demonstrate how lithium stocks can benefit from the “Tesla effect.” As the EV industry further expands and the demand for the raw material increases, lithium stocks could see even better days ahead.

I should point out that lithium itself hasn’t really been a hot commodity lately. Over the past 12 months, the price of lithium carbonate actually fell more than 35%. (Source: “Lithium,” Trading Economics, last accessed February 13, 2020.)

The fact that lithium stocks have enjoyed a strong rally despite the recent downturn in the commodity’s price shows just how strong the Tesla effect can be.

Analyst Take

Whether you like electric cars, it’s hard to deny that the EV industry has been growing rapidly.

And that means we’ll likely keep seeing Tesla Inc in the headlines. But instead of just betting on TSLA stock, investors might want to take a look at lithium stocks too.