Key takeaways
- Lithium production has skyrocketed and isn’t set to slow down this decade as EVs continue to scale up
- Lithium prices have dropped over 55% in less than six months – great news for EV companies, not as good for lithium miners
- The long-term future of lithium looks bright as long as countries continue to cooperate with suppliers
Who knew a light metal would be the star of the show on the stock market? Lithium is set to be the next battleground, as countries ramp up their own domestic efforts to harness the material that powers electric vehicle (EV) batteries.
As a result, lithium mining companies have shot up in value over the last five years. While a short-term price drop has knocked the stocks, there’s potential for basking in a lithium summer as the metal remains in high demand. Here’s the lowdown on the lithium landscape.
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Why invest in lithium?
If you’re new to lithium, you’re not the only one: it’s only exploded onto the scene in the last few years. So what’s all the fuss about this metal? Lithium is a key resource needed for EV batteries. As the EV market hots up and carbon-neutral strategies accelerate, so will the lithium industry as 80% of lithium demand comes from EV manufacturers.
It’s anticipated that as EVs and reusable batteries scale up, we’ll need three million tonnes of lithium globally by 2030. That’s a six-fold increase from the start of this decade, so it’s safe to say the entire process around mining and refining lithium will boom with new companies entering the market.
For investors, this could be a prime opportunity to get in at the lower end of the market to take advantage of the anticipated scale up in lithium production.
What’s the latest in the lithium stock market?
As production skyrockets, the fortunes of EV companies are likely to be closer linked with lithium mines and refineries.
There’s some interesting market conditions that have caused lithium prices to plummet to their lowest levels in 16 months, down to 212,500 CNY (roughly $30,863) from a high of 575,480 CNY (around $83,582) in November 2022.
The Chinese government ended its subsidy for households buying new EVs, which has seen demand drop sharply in the country. Combine it with ramped-up battery production throughout 2022 leaving a surplus in inventory, we’re seeing a short-term plunge in lithium prices.
What does this mean? It’s good news for EV company stocks, who have struggled with the high cost of lithium in the last 18 months. Ford’s stock price has increased 5.74% in the last month, while Chinese company BYD has seen a 15% gain in the same timeframe.
On the flip side, it’s not looking so hot for lithium mines as the price decreases. Lithium Americas’ stock price has dropped just shy of 8% in the last month, while Piedmont Lithium is down 7.51%. Albemarle shot up to highs of $325 at the peak of lithium prices, but is now trading at just under $200.
Tesla’s bet on lithium
When you think about EVs in the US, it’s usually Tesla that comes first to mind. The company has pioneered EV adoption domestically and holds a market share of around 65% in the US market.
Tesla CEO and billionaire Elon Musk has lamented in the recent past on how lithium refining is holding back the market, even urging entrepreneurs to enter the lithium refining business because “it is basically like minting money right now”.
Tesla has a three-year deal with Chinese company Ganfeng Lithium for its lithium, but looks to be securing its own supply. It started work on its $375 million lithium refinery in Texas, which is the first of its kind in the US and which is set to begin operations by the end of 2024.
Ganfeng’s stock is down 17% in the last year, but it’s doubled in price in the last five years. Tesla stock is up 70% this year thanks to slashing its EV prices and ramping up building megafactories across the world, its latest factory announced to be in Shanghai.
Lithium, EVs and the geopolitical landscape
But Elon can’t solve every problem when it comes to lithium production. At the moment Australia, Chile and China are responsible for 90% of the world’s lithium stores, with Australia accounting for over half (52%) of global production.
China is the third-biggest producer, but has a strong homegrown EV market. As a result, China has invested heavily in securing its supply. It’s got roughly $5.6 billion worth of lithium shares and assets in Chile and Australia, and accounts for 60% of the world’s lithium refining capabilities. Because of these efforts, China has a strong grip on the market above any other country.
All of this isn’t lost on the US, which has its own booming EV market but only a former crowning glory as the largest lithium producer back in the 1990s. Now it’s only responsible for a mere 1% of global lithium production.
Now, it’s racing to be a major player in the field and secure its own domestic supply. There are sites already open or that will be soon in Nevada, North Carolina, Arkansas and California with all of the major lithium mining companies involved in the operations. This is good news for EV investors, as it reduces the risk of a lithium dearth if the US and China relationship deteriorates.
The bottom line
Lithium production is set to be a key manufacturing material for the next decade. Despite its short-term drop in price, the long-term outlook on EVs and lithium suggests investors should look for deals now to benefit from further stock gains in the coming years.
Unless there’s a dramatic change in policy from major governments on phasing out gas vehicles, the future of lithium stocks are looking solid.
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