Key takeaways
- Lithium market has rapidly expanded with miners like Albemarle, Piedmont and Livent growing massively in the past five years
- Recent lithium price volatility and new Chilean nationalization have put a dampener on the lithium hype train, but prices have stabilized
- Investing in a mix of mining stocks and indirect exposure could be key for a lithium investing strategy
The lithium market has grown exponentially since electric vehicles (EVs) have steadily ramped up demand for the raw material. As a result, it’s been a red-hot market for investors – but not without its volatility.
For investors, getting in early could be a recipe for steady returns as the lithium market booms. But you need to understand what drives the industry, what’s happening in the market right now and who the big players are, to know if it’s a good investment for you. Buckle in for a crash course in lithium stocks.
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What is the lithium market for?
Lithium is the backbone of the EV industry because it’s a key resource for making reusable batteries powerful enough for cars and trucks. The market drives roughly 80% of all demand for lithium, with that share only set to grow as more people buy EVs.
Just a handful of countries are concentrated on the world’s lithium supply. Australia produces just over half of it, with Chile in second place with a quarter of the world’s supply in its salt flats. China comes in third for production, but has made trade deals with the other two countries and currently controls 60% of the world’s lithium refining capability.
EV production is ramping up globally. As a result, the World Economic Forum has predicted we’ll need three million tonnes of lithium globally by 2030. That’s a lot of lithium – and a lot of opportunity for the burgeoning industry.
The US is scrambling to catch up. Once the world’s top lithium producer in the 1990s before EVs transformed the industry, it’s now looking to beef up its measly 1% global production figure. There are sites already opened or coming soon in Nevada, North Carolina, Arkansas and California, all with potential investment opportunities as the decade progresses.
What are the latest developments in the market?
Currently, the lithium mining market is in a cycle of oversupplying and undersupplying as EV demand fluctuates. This has a marked effect on lithium prices and the stocks as a result. Prices hit highs of $90,000 at the end of 2022 but plunged to roughly $25,000 by April.
The positive news is the prices appear to be stabilizing since the end of April, which should bring lithium buyers back to the market again. Morgan Stanley thinks lithium prices will remain tight and predicts a year-long lithium deficit in 2023.
There are also countries’ national policies to contend with. Chile, the second largest supplier of lithium, has announced it plans to nationalize the sector with the state getting a slice of the action. Good for the Chilean government, bad in the short-term for the stock market which saw Albemarle drop 10% and Livent slide 5.5% at the news. But Chile has said it will honor all existing contracts, so it’s not a concern in the short term.
It also didn’t put a dampener on key players’ Q1 earnings. Albemarle reported $2.38 earnings per share, smashing its $1.64 prediction from Wall Street, with full-year sales targeted to hit $5.4 billion. Livent reported 60 cents a share from $235.5 million in sales, way up from analysts’ 39 cents per share from $230.2 million in sales prediction.
These have all happened in the last few weeks. Don’t say we didn’t warn you – this sector is developing at breakneck speed.
Top stocks for exposure to the lithium industry
Lithium mining businesses offer some serious potential upside for investors looking for long-term investments in clean energy.
Albemarle (ALBP)
Albemarle is the world’s biggest lithium mining company, but the stock has been a little volatile of late thanks to Albemarle’s reliance on the Chilean lithium supply and declining lithium prices. The stock price is down 12% this year but has seen an 88% growth rate over the last five years, so it could be a ‘buy the dip’ situation if lithium prices continue to stabilize.
Piedmont (PLL)
Piedmont Lithium, which isn’t exposed to Chile, might be a more attractive option for investors worried about nationalization plans. It has stakes in Canadian, African and American lithium mining projects and has seen a 32% increase in the stock price. Livent is a smaller but still mighty stock: at $23 a share with a 26% gain in 2023, there’s more potential for growth than the other two bigger miners.
Tesla (TSLA)
Want indirect exposure to lithium? Then the big EV players are an option too. Tesla is the obvious choice, given it’s working on securing its own lithium supply in Texas with a $375 million lithium refinery set to be in operation by the end of 2024. Eccentric billionaire Elon Musk bet early on EVs, and Tesla now corners 65% of the US market. Plus the stock has seen an impressive 59% gain this year after a bleak 2022.
BYD Company (BYDDF)
Chinese EV manufacturer BYD is a major rival to Tesla in the country. Despite the Chinese government cutting EV subsidies for households, which has quelled demand in China, BYD has still seen a 17% stock rise this year. It doubled its sales in April and has big plans to expand globally, so BYD is one to watch.
The bottom line
The lithium industry is rising up to meet the demands of a renewable energy-focused world. But as an investor, it’s a long-term play. We’ve already seen huge gains from lithium mining stocks and all signs point to these growing over the next decade, but investing newbies might be put off by the market volatility we’ve seen in recent months.
EV demand isn’t slowing down any time soon. And countries across the world are phasing out fossil fuels. So if you can stomach the swings, the lithium market could be a solid investment opportunity for the savvy trader.
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