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Investors betting on electric cars send millions into lithium ETF

  • Global X Lithium & Battery Tech exchange-traded fund (LIT) has gained about $143 million since news that China is looking to phase out fossil fuel cars.
  • The cost of lithium batteries has halved in the last three years, leading to an "inflection point" in demand for the metal, said Jay Jacobs, director of research at Global X Funds.
  • Short interest, or bets for a decline, in the ETF has climbed to its highest in more than two years, according to IHS Markit.
This photo taken on May 22, 2017 shows a car passing new electric vehicles parked in a parking lot under a viaduct in Wuhan, central China's Hubei province.
STR | AFP | Getty Images
This photo taken on May 22, 2017 shows a car passing new electric vehicles parked in a parking lot under a viaduct in Wuhan, central China's Hubei province.

Investors are betting on a surge in electric car sales after indications that China, the world's largest market for the vehicles, may soon wind down production and sales of cars using fossil fuel.

From the time China's state-run Xinhua newspaper reported the news on Sept. 11 through Tuesday's close, investors poured about $143 million into the Global X Lithium & Battery Tech exchange-traded fund (LIT), according to ETF.com. Tuesday alone drew $49.8 million in inflows, nearly 10 percent of the now $651 million fund.

That kind of interest in an ETF, especially one so narrowly focused, is "extremely rare," said Todd Rosenbluth, director of ETF and mutual fund research at CFRA. "A really strong 2017 has triggered strong investor interest at a time when a lot of money is going into well diversified and cheap ETFs."

Source: ETF.com

"Interest has really accelerated, really since the Chinese announcement came out," said Jay Jacobs, director of research and vice president at Global X Funds. "What's driving it is we've hit a clear inflection point in lithium demand."

Jacobs noted the cost of a lithium battery has halved over the last three years, making electric vehicles cheaper for consumers. Meanwhile, China is the latest in a string of major governments to move toward electric cars.

The Xinhua report said Xin Guobin, China's vice minister of industry and information technology, disclosed that the country had started research on a timetable to phase out production and sales of fossil fuel cars. He did not say when such moves would occur.

Chinese car stocks jumped in Hong Kong trade Wednesday, with Geely Auto rising 5.7 percent and BYD limited Class H shares climbing nearly 12.7 percent.

Tesla shares closed slightly lower after hitting a record high Monday.

Tesla accounts for nearly 7 percent of the Global X LIT fund, according to a fact sheet. FMC, which has a major lithium producing unit, accounts for almost 25 percent, and other top holdings include Chile-based lithium producer SQM, battery manufacturer Samsung SDI, Panasonic, specialty chemicals company Albemarle, LG Chem, Simplo Technology, EnerSys and GS Yuasa.

"Chinese interests have been investing in them and other entities," David Pratt, president of MCAM International, said in an emailed statement to CNBC. MCAM maintains an archive of documents related to patents and other intangible assets from many countries.

China accounted for more than 40 percent of electric cars sold in the world, with more than double the number sold in the U.S. in 2016, according to the International Energy Agency's Global EV outlook 2017.

LIT fell 2 percent Wednesday, but it remains up almost 58 percent for the year.

That said, the massive gain this year has also attracted short sellers, or traders betting on LIT's decline. The average percentage of shares out on loan, a measure of short interest, climbed in the last four weeks to its highest in more than two years at 4.7 percent, according to a Wednesday report from IHS Markit.

"Short-sellers tend to be much more short term," Global X's Jacobs said, noting that his firm believes in the lithium investment thesis for the long term.