Environment

How to invest in the battery revolution

Batteries are currently the bottleneck of many technologies. You have a phone, but after using it for half a year its battery percentage says 36% at 5PM, when you still have a long evening ahead of you. Your laptop battery used to last for five hours when you first got it but now can only go for two. Your smartwatch can barely last you a full day, and on that twelve hour flight your wireless headphones die eight hours in.

Consumer devices have become more compact over the years. Whereas a Nokia 3310 (yes, that Nokia) used to measure 22mm in thickness, the latest iPhones measure only 7-8mm thick. Battery technology has had to shrink down in size accordingly, and on top of that it has had to go from supplying power to small monochrome displays to now powering full-fledged computing devices with huge state of the art screens. Never mind powering lightweight sports cars.

Thus far the battery technology that is available in your average consumer electronics (typically Lithium-ion) has struggled to keep up with these developments. Should at some point the barriers to quick charging and longer battery life be broken however, battery technology would represent a great investment for the longer term.

What are the latest developments in battery technology?

Most devices you will have come across in an average household (and in its next door garage) over the last decades run off Lithium-ion batteries. There are many different types of Lithium-ion batteries, and without going into the technical stuff (you know, how electrons are moved from one end of the battery to the other between the anode and the cathode or positive and negative electrodes, ahem) suffice it to say that these have generally been found to be the most efficient type of battery. Though not without their issues, mainly in the area of safety.

Developments in battery technology all focus on increasing the density of the battery (more energy in less space), improving the battery life and safety. Because no one likes exploding batteries.

Currently there is no clear indication of which technologies are going to win out. There is ongoing research by the big technology companies into improving Lithium batteries, with Lithium-air or Lithium-sulfur as possible contenders to take Li-ion’s place in your phone. Other technologies like solid state batteries, Sodium-Ion or Aluminum-Air batteries look at replacing Lithium entirely, but that seems further off and is receiving less R&D spending. So far no successor has successfully been brought to the market yet.

Demand from all sides should make this a great longer term investment

Batteries go in practically anything, and crossing the hurdle to having longer lasting and faster charging batteries could literally change our lives. Whatever the new technology ends up being, once it ends up on the market there is sure to be enormous demand.

As we have outlined above, which technology is going to end up in your phone is harder to predict, but most currently see no real competition for advances in Lithium batteries. Moreover, if the last 25 years are any guide for the future, it appears that any changes will happen gradually than suddenly. If new advances come to the fore, existing battery manufacturers are likely to be quick to jump on it.

Portfolio construction: lithium and battery technology

  • This single ETF theme portfolio consists of the Global X Lithium and Battery ETF which tracks the Solactive Global Lithium Index. It invests into the full cycle of a battery: from miners (creating exposure to Lithium prices) to actual battery producers
  • The ETF contains allocation to predominantly the United States, Australia, South Korea and Japan (77%) in total
CategoryNameIDTERAlloc %
BatteriesGlobal X Lithium & Battery Tech ETFLIT0.76%100.0%

Risk, Diversification And Allocation

  • Risk level: high
  • Diversification: low
  • For risk and total return since initiation see Portfolios
  • Probability of this theme playing out in the next 3-10 years: 50%-50%

Portfolio Characteristics (Full Look-Through, From USD Perspective)

  • Dividend yield: 3.74%
  • Ex-ante predicted volatility: 15.8%
  • 1 year 95% Value-at-Risk: –22.2%
  • Scenario 2008 Lehman Brothers default period: -31.0%
  • Scenario Interest rates +100bps: +6.1%
  • Scenario 2008-2009: -21.7%
  • Scenario 2010 onwards: +156%

 

52 week Range -
/

Categories: Environment, Technology, Themes

Leave a Reply