Battery powered vehicles are becoming more mainstream, with a number of countries even vowing to move almost entirely to battery powered vehicles in the coming years.
The Netherlands made headlines earlier this year when the lower house of the country's parliament passed a motion to ban the sale of new petrol and diesel cars beginning in 2025. This sets the stage for phasing out forms of transportation that cause high levels of pollution, with Norway and India also reportedly wanting to become completely reliant on electric vehicles within the next two decades.
If companies such as Tesla and BMW can continue to ramp up their production of such vehicles, such a vision could become more of a reality with more countries uniting in the fight against climate change.
But the transition towards renewable energy isn't restricted to the auto market. Even homes are set to become increasingly reliant on solar technology, again driven by initiatives from businesses such as Tesla, under the guidance of billionaire entrepreneur Elon Musk.
However, this trend has not gone unnoticed. Lithium is an element which is used in the batteries of many of these devices, including smartphones and cars. As such, lithium prices have skyrocketed in anticipation of heightened demand, with more and more companies arriving on the scene in the hope they too can make a handsome profit.
As one would expect, shares of some of those businesses which mine and produce lithium have also surged higher. General Mining Corp Ltd (ASX: GMM) was by far the ASX's best-performing share in 2015, rocketing 5,000%. Shares have gained another 214% so far this year, amounting to a total 15,900% gain in just under 18 months.
Others have also exploded in price, including Altura Mining Ltd (ASX: AJM), Dakota Minerals Ltd (ASX: DKO), Galaxy Resources Limited (ASX: GXY) and Kingston Resources Ltd (ASX: KSN), all of which have risen between 100% and 343% so far in 2016.
Seeing those kind of gains in such a short space of time – particularly with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) otherwise remaining somewhat volatile year-to-date – can make a move into the sector extremely tempting, especially knowing that much of the world is trending towards renewable energy.
However, there are risks involved which some investors may not be giving enough weight to at the moment. Firstly, momentum may well have played a role in pushing the share prices higher and if or when that momentum diminishes, the shares could be hit hard.
It's also important to note just how capital intensive the mining industry is, while there is no guarantee of succeeding in mining. Indeed, shares of some companies have soared at the very mention of moving into the lithium industry, despite not having actually produced any at this point in time.
It's entirely possible that some of the smaller companies will fail, particularly if bigger and more cashed up firms such as Rio Tinto Limited (ASX: RIO) or BHP Billiton Limited (ASX: BHP) decide to encroach on their turf.
Shares in the lithium sector could have further to run, and that would especially be the case if the price of lithium itself does continue to rise. But before you even consider a move into the sector, remember the enormous risks being taken in doing so, and perhaps focus on some of the bigger players such as Orocobre Limited (ASX: ORE) rather than the smaller, far more speculative bets.
