Top fundie picks this ASX 200 resource share for the EV revolution

Electric vehicle growth is poised to take off, driving demand for lithium. This ASX 200 resource share is "ideally positioned" for the boom.

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S&P/ASX 200 Index (ASX: XJO) resource shares are in the spotlight this year as talk of a new commodity super cycle percolates through the financial markets.

Today we drill down to a single ASX 200 resource share. One primarily involved in exploring for and producing lithium.

Why lithium?

Because, though you may not yet notice it here in Australia, the electric vehicle (EV) revolution is well and truly underway.

Elon Musk's Tesla Inc (NASDAQ: TSLA) is likely the first to spring to mind when you think about EVs. But the world's biggest car manufacturers by production figures, including Ford Motor Company (NYSE: F) and Volkswagen are close on Musk's heels with plans to go all-electric over the coming years.

The EV effect

EVs may not require any oil or gas. But, as the name implies, the lithium-ion batteries that power most of them do require lithium to get the cars from point A to B. And, perhaps after a little charging, back to point A.

The majority of analysts believe that growing demand from the battery boom will continue to support the soaring lithium price in the foreseeable future.

According to Argonaut Funds Management chief investment officer David Franklyn (quoted by the Australian Financial Review), "The tipping point is here. Even a year ago, it would have been hard to believe that one of the world's major car brands would make a comprehensive switch to electrical vehicles."

With nary a car manufacturer in sight on the ASX 200 (or anywhere in Australia), Aussie investors can still get aboard the EV revolution.

As Franklyn says:

We believe that resource companies are the best way to gain exposure to the EV thematic, as the rapid growth in the EV market will create enormous additional demand for commodities such as copper, nickel, cobalt, lithium and rare earths. It is unlikely that supply will keep pace with demand, given the long lead times involved in bringing a new mine into production, so prices are likely to move higher.

Franklyn adds, "We see this as a multi-decade transition and Australia is perhaps best placed to capitalise, given its huge resource endowment, its strong legal and financial systems and strong ESG frameworks."

Why this ASX 200 resource share is ideally placed

According to Argonaut Funds Management's Franklyn, companies that are able to ramp up production of core elements like lithium and nickel are likely to reap the biggest early rewards as increased demand from the fast-growing EV market fuels higher prices.

Franklyn points to ASX 200 listed IGO Ltd (ASX: IGO) as being "ideally positioned" to benefit:

IGO is ideally positioned as our preferred EV exposure, given its existing highly profitable nickel operations and its proposed acquisition of a 25 per cent interest in the Greenbushes lithium mine and a 50 per cent interest in the associated lithium hydroxide plants.

Greenbushes produces about 20 per cent of global lithium supplies and has the capacity to ramp up production quickly, and the integrated nature of its operations enables it to capture more margin and provides a secure supply source for major battery manufacturers.

IGO share price snapshot

Over the past 12 months, IGO shares have gained around 38%, handily beating the 28% gains posted by the ASX 200.

Year to date, the ASX 200 resource share's price is up 2%. At the current share price of $6.85, IGO has a market capitalisation of $5.2 billion. IGO pays an annual dividend yield of 0.74%, unfranked.

Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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