Lithium ETF (LIT) Surges As A123 Systems Ramps Up Battery Production

by on September 14, 2010 | Updated September 15, 2010 | ETFs Mentioned:

Monday was a solid start to the week for equity markets, as reaction to the new “Basel Rules” regarding capital requirement levels, which gave banks a generous amount of time to meet the new requirements, sent shares surging. While this news remained in the spotlight for much of the day, one small sector of the economy also produced a banner day for shareholders but for a completely different reason. In case you missed it–and you probably did–one of the other big gainers on Monday was the lithium industry, which saw its fortunes soar thanks to small A123 Systems’ (AONE) opening of a new factory in Michigan. The new factory will be the largest lithium-ion automotive battery production center on the continent and helped to send shares of the Massachusetts-based firm surging higher by close to 10% on the day.

The new plant, which is located in Livonia, Michigan, will expand the company’s A123 manufacturing capabilities by up to 600 megawatt hours a year, and comes thanks to a $249 million grant from the Department of Energy, which issued the funds to the company as part of the stimulus package of 2009. “The opening of our Livonia facility is a significant milestone and confirms that we are accomplishing our stated objectives that accompanied the DOE grant,” said David Vieau, president and CEO of A123 Systems. “Bringing this factory on line in just over a year is a testament to our technology innovation and strategic plan to ramp up manufacturing, but it also speaks to the maturity of the market—without significant customer demand for our products today, a capacity expansion of this magnitude would not be possible” [see Three ETFs To Play The Coming Energy Storage Boom].

This company makes up close to five percent of the newly-launched Lithium ETF (LIT) from Global X, which surged higher by 2.4% in Monday’s trading. Though AONE is a relatively small firm, the expansion highlights a potentially bright future for the global lithium industry, and perhaps a preview of the new face of Detroit. The market’s positive reaction to the new plant contributed to strong performances for companies engaged in various aspects of the lithium industry; lithium mining giant SQM, which makes up close to 20% of LIT, jumped higher by 2.3% in Monday trading.

In addition to these two companies, LIT offers broad-based exposure to the lithium industry by tracking the Solactive Global Lithium Index. This index is comprised of companies globally that are primarily engaged in some aspect of the lithium industry, including lithium mining, exploration, and lithium-ion battery production. The fund is roughly split down the middle in terms of lithium mining and lithium battery producers, which both look likely to benefit should demand continue to surge for more lithium-based products. LIT holds just 20 securities in total and is now up more than 11% since its inception in late July [see more information on LIT's fact sheet].

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Disclosure: Eric is long LIT, photo is courtesy of Picasa user lowem.