Tesla Motors (
), which was one of the hottest stocks this year, has recently been
hit hard by disappointing third quarter results and three Model S
fires. In fact, shares of the electric car manufacturer plunged
nearly 38% since the start of October, suggesting that the stock
has entered into a bearish territory.
Sluggish Third Quarter Result
While Tesla surpassed the Zacks Consensus Estimate on revenue, it
missed on the bottom line. The company is also facing a shortage of
lithium ion batteries, which is limiting its production capacity
2 ETFs to Watch on Tesla's Mixed Earnings
Although the company has increased its production capacity to 550
cars per week and has delivered a record 5,500 Model S cars during
the third quarter, it is still failing to meet the rising demand.
This trend is expected to continue, as Tesla won't get
significantly higher number of batteries until next year, according
to its deal with supplier Panasonic.
Raises Lithium Battery Issues
The first Model S electric vehicle fire caught near Seattle early
October when the car collided with a "large metallic object". The
second fire ignited later in the month after the vehicle crashed
through a concrete wall and hit a tree in Merida, Mexico.
The third incident occurred in Nashville in early November after a
car hit road debris. Investors should note that Model S is equipped
with lithium ion batteries, which are at the heart of the electric
car revolution. (read:
These 3 ETFs Could Soar on Strong Car Sales
While this is not enough, other big companies like Boeing (
), General Motors (
), Apple (
) and Dell (
) are also struggling with lithium battery issues in recent years,
according to the
24/7 Wall Street
As such, the recent Tesla fires have increased concerns on the
safety of lithium batteries, putting both producers/miners of
lithium as well as those that make and sell the final battery
product, in trouble.
This is especially true given that the broad play in this space -
Global X Lithium ETF (
- is down nearly 6% since the start of October and nearly 12% in
the year-to-date period. Let us dig into this fund in greater
Lithium ETF in Focus
The product provides global exposure to the broad range of firms
engaged in the mining of lithium, or the development of lithium
batteries. This is done by tracking the Solactive Global Lithium
Index giving access to the largest and most liquid 22 firms around
American firms dominate the portfolio with 53% share while Japan,
South Korea and Chile round off to the next three spots with
single-digit allocation. From a sector look, the ETF is heavy on
materials with 56% share, closely followed by consumer cyclical
(17%) and industrials (14%) (see:
all the Material ETFs here
The fund is highly concentrated on the top two American firms - FMC
) and Rockwood Holdings (
) - which collectively make up for nearly 38% of total assets.
Other firms hold less than 6.6% of assets.
Additionally, the product has a slight tilt toward mid cap
securities, accounting for nearly half of the portfolio. The
remainder is split between mid and small caps (read:
3 Top Ranked Mid Cap Value ETFs in Focus
The fund has amassed $50 million in its asset base and trades in
light volume of nearly 23,000 shares per day. This increases the
total cost for the fund in the form of a wide bid/ask spread beyond
the expense ratio of 0.75%.
Like many other commodity funds, LIT is facing severe losses and
has been struggling for much of 2013. Given broad-based lithium
battery issues at least for the short term, investors should avoid
this ETF for the time being and should look elsewhere in the
commodity prouder space.
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GLBL-X LITHIUM (LIT): ETF Research Reports
TESLA MOTORS (TSLA): Free Stock Analysis Report
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