Battery Stocks Are Heating Up—These 2 ETFs Offer a Safer Bet

Key Points

• Battery stocks offer long-term growth potential despite recent lithium price volatility, oversupply concerns, and slower electric vehicle sales growth.
• Investors seeking diversified exposure can consider ETFs like BATT and LIT, which hold mining, refining, and battery-related companies with differing strategies and fees.
• Government investment in domestic supply chains and rising demand from grid storage, data centers, and AI are expected to support long-term battery industry growth.

Short-term swings in commodity pricing aside, battery stocks present a compelling long-term proposition for investors anticipating that the electrification boom will continue. These companies have faced some challenges of late, including turbulent lithium prices, concerns about oversupply, and slower-than-hoped-for electric vehicle sales growth. However, the fundamentals of the industry may be improving just as demand drivers are diversifying to include grid-scale energy needs, data centers, industrial projects, and more.

Because individual battery stocks may still be liable to face volatility, investors might choose to look for a basket of these stocks via a battery-focused exchange-traded fund instead. Products like the Amplify Lithium & Battery Technology ETF NYSEARCA: BATT and the Global X Lithium & Battery Tech ETF NYSEARCA: LIT offer access to mining companies, refiners, battery makers, and other names in the tech space that could all benefit from battery demand.

The Landscape for Battery Stocks Is Looking More Favorable

Before considering those two funds, it's worth noting the ways that the battery stock landscape is becoming more conducive to growth. First, as the industry has moved from a commodity-related play to a key strategic supply chain one, governments around the world have invested heavily to reduce their international dependence on critical minerals. In the United States, domestic mining, refining, and manufacturing have picked up, even as China remains the major force in the supply chain. These efforts mean potential for growth for domestic names; the global lithium ion battery market is projected to more than double to $426 billion by 2033.

At the same time, the price of lithium—one of the essential elements used in battery production—is recovering after oversupply contributed to lower prices. Stronger demand could help to absorb this excess supply going forward, and while prices are not back to their peak levels of a few years ago, they seem to be trending in the right direction.

An Actively Managed Fund for Broad Access to the Battery Market

For an annual fee of 0.59%, BATT provides an actively managed approach to the battery market. It holds a basket of companies that generate revenue from developing, producing, and using lithium batteries, meaning that it holds stocks across battery storage, metals, materials, EV, and other industries.

While the fund generally corresponds to the EQM Lithium & Battery Technology Index, it is not beholden to this collection of stocks or this set of allocations, giving it added flexibility to pivot when conditions change.

The result is a fund with 53 stocks representing multiple sectors and industries involved in batteries. Some of the largest holdings are major names like Tesla Inc. NASDAQ: TSLA and mining giant Freeport-McMoRan Inc. NYSE: FCX, but even the largest holding only accounts for just over 7% of the total portfolio, so the fund is fairly well diversified.

BATT remains a niche fund, with only about $125 million in managed assets and a modest average trading volume around 34,000 shares on a one-month basis. Though it has experienced pronounced volatility throughout the year so far, it is currently up about 9% year to date (YTD) and offers a dividend yield of 1.7%.

Directed Exposure to the Lithium Industry

LIT takes a somewhat different approach compared to BATT in that it focuses specifically on lithium, with a group of stocks involved in mining and refining the metal, as well as battery production. Batteries are a major application of lithium, but not the only one, so it's possible that this fund will provide somewhat less concentrated exposure to the battery market than BATT.

The fund is passively managed but has a higher annual fee than BATT, with an expense ratio of 0.75%, likely due to the niche nature of its strategy. A group of 42 stocks comprises LIT's portfolio, and more than 23% of the fund is given over to a single name: Rio Tinto PLC NYSE: RIO, the British-Australian mining giant that is one of the world's largest lithium producers.

LIT has also been subject to the variance in lithium prices in recent months, but is currently up more than 8% so far this year. Unsurprisingly, the fund is highly affected by lithium price fluctuations, which may be a boon for investors seeking more indirect exposure to battery stocks as a group.

Regardless of the challenges these funds—and the broader battery and lithium spaces—have faced, long-term tailwinds remain strong. As renewable energy and electrification efforts expand and AI-driven electricity demand continues to grow, battery technology will undoubtedly remain essential.