The lithium rush has failed to spark much investor confidence, but seems to have fuelled the bears.
According to research analysts at Markit, short sellers have doubled their positions in the global lithium firms which make up the Global X Lithium ETF (GBX:LIT).
The Global X Lithium ETF (LIT) bumped up nearly 3% on Tuesday, which was more than four times the daily average, bringing its year-to-date gain to 17.5%.
While enthusiasm for the industry is high, it doesn’t seem to be translating well to the stock market, certainly not enough to push back the doubters.
The market commotion attracted the attention of bears, with average short interest among LIT constituents up 80% in the past year.
Electric car components manufacturers are seeing the most shorting activity, as bears pile into the likes of Tesla (NASDAQ:TSLA).
Lithium is a key component in ion batteries, used in electric cars. Firms dealing in the metal have seen their share prices climb as the electric car industry revs up.
But some analysts are seeing the lithium boom as an ultimately limiting factor, bottle-necking the supply chain of electric car components.
The launch of Tesla’s Model 3 was meant to pave the way for the mass market electric car movement, but sceptics question Tesla and other manufacturers’ ability to deliver a reliable product cheap enough to appeal to the mass market.
It all hinges on whether the makers will be able to source enough batteries at a rate that doesn’t push the price-tag beyond the mass market threshold.
Tesla remains resilient however. Shares rally upwards, just scraping 12 month highs.
At the source, mining firms have seen the largest market movement, feeling the shockwaves of the downward blows.
For the chemical and mining firms, the average short interest increased over 160% to reach 3.2%.
One of the leading suppliers of lithium, FMC Corp has seen a threefold increase in shorting activity in the past 12 months, with 7.7% of shares outstanding currently on loan. FMC is by far the largest holding in the LIT with just under 20% and shares have slipped 34% over the past year.