UBS picked 3 Australian stocks that will benefit from the revolution in electric cars

An electric car, to be raced in the FIA Formula E Championship, parked in front of the Saint-Louis-des-Invalides church in Paris. LIONEL BONAVENTURE/AFP/Getty Images

Lithium, defying global commodity price trends because of its demand as a key ingredient in batteries for electric cars, may still have a lot of upside to come.

It’s all about disruption in the energy market and the arrival of electrically-powered cars.

The increasing demand for more efficient and lighter batteries to power the latest gadgets and as a way of storing solar energy is also driving prices higher for Lithium.

“We like to invest in the tailwind of structural change,” says Stephen Wood, portfolio manager at the Australian Small Companies team at UBS.

Wood sees Lithium at the centre of a major shift in vehicle technology and power storage.

“Electric vehicles have great advantages,” he says. “Power is instant, no clutches, no transmission, no radiators, no noise and no emissions.

“The disadvantages are the weight of batteries, the amount of energy needed for reasonable range and (in Australia) principally coal fired sourced re-charging.”

Lithium batteries offer a solution to that weight problem and a way to store intermittent power generation by renewables such as solar and wind.

“As a consequence, the price of lithium has risen strongly in the last six months,” he says.

And demand is expected to rise as much as 10% a year for many years to come.

A key to that is factories such as Tesla’s gigafactory which is due to be officially opened next month.

Local lithium miners Orocobre (ORE-ASX), Pilbara (PLS-ASX) and Galaxy (GXY-ASX) are included in the UBS funds Small Cap, SIV and Microcap.

“They are exposed to what is likely to be the largest structural change we will witness in the next decade,” says Wood.

Last month Galaxy and General Mining Corporation agreed to merge to capitalise on surging demand for lithium.

The combined group would become the second largest lithium player in Australia with a market capitalisation of almost $800 million.

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