Lithium, the elemental metal, is a much-discussed commodity these days. It's used to manufacture batteries, notably for electric vehicles (EVs), so many investors feel optimistic about companies that produce and refine the basic material.
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However, anyone investing in the sector should prepare for a wild ride. For example, the price of lithium carbonate (used in batteries) rocketed almost sevenfold from the summer of to the autumn of , only to fall back down to levels in the summer of .
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Automakers and battery manufacturers accelerated investment in EVs during the pandemic but then pulled back as relatively high interest rates constrained auto sales, including EVs. The resulting oversupply of lithium caused the lithium price to fall through and into .
Even with the oversupply, soaring battery demand from EVs and energy storage (saving power for later distribution to the electric grid) have some investors anticipating a solid recovery in lithium demand in the next few years.
In the U.S., the Infrastructure Investment and Jobs Act, a significant step towards a greener future, allocated $5 billion in federal funding for EV charging stations. And the Inflation Reduction Act was passed to provide credits for consumers, further supporting President Biden's ambitious goal of EVs accounting for 50 percent or more of new auto sales by . With such strong government support and automakers aligning their strategies, the future demand for lithium looks promising. Here's what you need to know before considering an investment in this essential material used in battery development.
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Law of Supply and Demand
The law of supply and demand is an economic theory asserting that supply and demand will meet each other at a certain equilibrium price.
Five leading lithium stocks
Investing in lithium stocks
Like any basic materials and metals investment, betting on lithium isn't for the faint of heart. Soaring demand for a material used in manufacturing doesn't automatically equate to higher sales and profits for a company. Supply also plays a hand in the market price of the basic material, so when supply outpaces demand, prices fall -- and the material producer's sales can fall, too, even if demand is expanding.
As with all mining operations, establishing new lithium projects can be a substantial financial commitment. It often takes several years to reach full production, which can strain a mining company's financial resources. However, the long-term potential of these projects can be a significant draw for investors.
It's important to note that new lithium mines are not immune to political uncertainty. For instance, Chile, the world's second-largest lithium-producing country, has plans to nationalize its lithium industry. Similarly, a major lithium mining project in Serbia was halted in due to environmental protests. However, discussions are ongoing in , and there is a possibility that Europe may soon have its first major lithium mine. These challenges, while significant, also highlight the industry's resilience and adaptability.
Top lithium stocks for
Here are five leading lithium producers in this growing market:
Data source: YCharts. Market cap as of Jan 9, .
Company
Market Cap
Description
Albemarle (NYSE:ALB)
$12.2 billion
One of the world's largest suppliers of lithium.
Ganfeng Lithium (OTC:GNEN.F)
$8.5 billion
China's largest producer of lithium.
Sociedad Quimica y Minera de Chile (NYSE:SQM)
$12.3 billion
Diversified chemicals and base material producer and major lithium producer.
Lithium Americas (NYSE:LAC)
$605 million
Currently developing a lithium production site in Argentina with Ganfeng Lithium.
1. Albemarle
Mining and chemical producer Albemarle is leading the charge in global lithium output. Among the company's biggest customers is Panasonic (OTC:PCRFY), which manufactures lithium batteries for everything from small consumer electronics to EVs. Samsung (SSNL.F -28.76%) and Corning (GLW -0.54%) are also significant customers.
Although lithium prices can be volatile and will ultimately guide the direction of Albemarle's sales, the company has proven itself over the years to be a durable mining operation that can bring lithium to market.
It's an excellent place to start if you are looking to expose yourself to the upside potential of the price of lithium carbonate.
2. Ganfeng Lithium
On the other side of the Pacific, Ganfeng Lithium is China's largest producer of base materials for lithium battery manufacturing. Given the sheer size of China's population (1.4 billion) and the rapid rise in EV sales, Ganfeng is well positioned as a top supplier to EV manufacturers based in China and the U.S. EV manufacturers such as Tesla (TSLA -0.11%).
The company is well capitalized with cash and manageable debt, and it has generated healthy profit margins.
3. Sociedad Quimica y Minera de Chile
One of South America's top basic materials and chemical companies, Sociedad Quimica y Minera (SQM) is one of the world's largest producers of lithium used in batteries and other energy storage technologies. Like some of the other diversified and well-established mining operations such as Albemarle and Ganfeng, SQM generates healthy double-digit operating profit margins, has plenty of cash to fund expansion, and carries minimal debt.
Chile's pending nationalization of the lithium industry could pose risks for SQM shareholders, though. The company is currently highly reliant on Chilean resources, and it remains to be seen how state control of lithium (if implemented at all) would affect SQM's ability to generate a profit.
SQM predicts demand for lithium will outpace supply over the long term, so it has been investing to increase its production capacity. With recent improvements now complete, the company claims it will be able to increase its market share in supplying lithium, mainly for EV batteries.
4. Lithium Americas
Legacy automakers have big plans to electrify their vehicle lineups in the coming years, which means millions of new EVs could be sold. The potential trend has led to a big jump in smaller, more speculative lithium stocks such as Canada-based Lithium Americas.
Lithium Americas currently doesn't generate any revenue. It is building lithium extraction sites in Argentina with partner Ganfeng Lithium. It completed a feasibility study on another 100% owned site in northern Nevada, and has begun construction there, backed by a $650 million equity investment in Lithium Americas from General Motors (GM -8.99%).
This makes Lithium Americas a highly speculative stock. Tread lightly with these speculative bets.
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Staying diversified
Staying diversified
To help lessen wild swings in value, consider buying a lithium ETF such as the Global X Lithium & Battery Tech ETF (LIT -3.43%) or invest in a basket of lithium stocks such as the ones listed above. Given the ups and downs in lithium production, keep any investment in this niche of the mining and chemicals industry small, and stay focused on the long term.
FAQ
Lithium stocks: FAQ
What is the best lithium stock to buy?
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For investors looking for exposure to the price of lithium, Albemarle looks like the safest bet, with Lithium Americas an option for risk-seeking speculative investors.
Is it worth investing in lithium stocks?
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The sector is only worth looking at if you believe in future demand coming from the EV industry and ongoing supply restraints on lithium -- both are likely to send the price of lithium higher.
What lithium company does Tesla use?
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Tesla has agreements with Piedmont Lithium and Ganfeng to supply lithium. In addition, Tesla owns rights for a lithium mine in Nevada.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends Corning and General Motors and recommends the following options: long January $25 calls on General Motors. The Motley Fool has a disclosure policy
Electric vehicles (EVs) are upending the status quo of internal combustion vehicles (ICE), just like ICE vehicles once displaced the horse-drawn carriage. Fueling this shift to electric power requires next-generation battery technology and an ample supply of lithium, the key raw material for lithium-ion batteries.
While many people may be familiar with EV pioneer Tesla, there is an entire ecosystem of battery producers and lithium mining firms that are playing critical roles in this transformation. At a high level, the industry&#;s ecosystem starts upstream with lithium miners that extract the metal from the earth. These raw materials then move into the chemical conversion process to produce lithium carbonate or lithium hydroxide. Battery producers combine carbonate or hydroxide with materials to form a cathode and an anode, together forming an individual battery cell. Thousands of cells may be combined to create a battery pack for an EV.
In this piece, we highlight four companies that represent key players in this ecosystem:
- Ganfeng Lithium: A leading Chinese lithium mining company that has evolved into refining and processing lithium, battery manufacturing, and recycling.
- Panasonic: A top-3 global EV battery manufacturer from Japan.
- Livent: A top-5 lithium producer from the US.
- Contemporary Amperex Technology Limited (CATL): A top-3 EV battery manufacturer from China.
Ganfeng Lithium: A Vertically Integrated Lithium Producer
Ganfeng Lithium along with Albemarle, SQM, Tianqi Lithium, and Livent control more than 70% of the world&#;s lithium supply. Established in , Ganfeng is the third-largest lithium compound producer in the world and the leading producer in China. The company is unique because it covers a wide swath of the lithium-ion battery supply chain, including lithium resource development, refining & processing (75% of total revenue), battery manufacturing (17% of total revenue), and battery recycling & other (8% of total revenue).1
Ganfeng has a broad international footprint with lithium operations in Australia, Argentina, Mexico, and Ireland, in addition to its resources throughout China. Mount Marion in Western Australia is Ganfeng&#;s primary source of lithium. Different locations require unique approaches to efficient lithium extraction. In Australia the company uses hard rock lithium extraction processes.2 In Argentina, Ganfeng extracts lithium via a brine process as is common in Latin America&#;s Lithium Triangle (Argentina, Bolivia and Chile). In Mexico, the company is exploring new lithium clay extraction methods with an expected production start in .3
The company boasts long-term supply contracts with major battery producers and OEMs like Tesla, Panasonic, LG Chem, Volkswagen, Samsung, and, recently, BMW. Helped by the predictability of these contracts, Ganfeng expects to double its capacity from 100,000 metric tons in to 200,000 by .4 Given the growth potential of EV sales, OEMs and battery producers are likely going to enter additional offtake agreements to secure access to lithium. This surging demand should help companies like Ganfeng secure long-term contracts at higher prices.
Ganfeng is also focused on growing its lithium hydroxide production and sales. Lithium hydroxide is better suited than lithium carbonate for the next generation of EV battery technology. Batteries with NMC 811 cathodes and other nickel-rich batteries, require lithium hydroxide.5 By , the company expects to produce and sell 50,000&#;60,000 metric tons of lithium hydroxide and 20,000&#;30,000 metric tons of lithium carbonate.6
Panasonic: Tesla&#;s Longtime Partner
With more than 100 years of history, Japan&#;s Panasonic is the world&#;s third-largest supplier of EV batteries.7 The company is considered a Tier 1 lithium-ion battery producer according to Benchmark Mineral&#;s classification standards.8 The designation means that the company produces the highest-quality lithium-ion batteries, for automotive uses.
Panasonic&#;s efforts in the EV supply chain are well known, particularly through its relationship with Tesla. In , Panasonic and Tesla partnered to build Giga Nevada, the world&#;s largest lithium-ion battery factory. Recently, Panasonic started working on Tesla&#;s featured battery cell called .9 The new format is expected to store more energy and have an easier manufacturing process, two keys to further reducing battery costs. Currently, a battery represents approximately 29% of the total cost of an EV.10 As EV manufacturers seek to gain market share from ICE vehicles, reducing battery costs is critical.
To date, Panasonic is the sole provider of lithium-ion batteries to Tesla for EVs manufactured in the U.S. But Panasonic is also expanding its EV battery customer base beyond Tesla. The company recently partnered with Toyota to build a lithium-ion plant in Japan to supply 500,000 EVs starting in .11
Livent: Focused on Lithium for the Next Generation of Batteries
Livent, which was spun out of FMC Corporation in , is a Philadelphia-based company with a lithium history that dates back to the s. Compared to the other large Western players, namely Albemarle and SQM, which own and operate some non-lithium businesses, Livent is a pure-play company focused only on lithium.
Livent operates one of the lowest-cost lithium mineral deposits in the world, the Salar del Hombre Muerto in Argentina. The company&#;s operations sit at the low end of the global cost curve to produce lithium carbonate. Yet, the company&#;s strategy is to focus on lithium hydroxide. As such, it is important to note that brine-based raw materials like these require a two-step process to get to lithium hydroxide: a conversion into lithium carbonate first and then a conversion into lithium hydroxide. This extra step adds costs, but the all-in cost structure for lithium hydroxide, which we estimate to be about $5,800, remains below today&#;s depressed lithium prices.12
The growing prevalence of nickel-rich batteries, which require lithium hydroxide, supports Livent&#;s business strategy. The company estimates nickel-rich batteries should increase their market share from about 25% today to 75% by the end of the decade.13
Livent is known for its relationship with Tesla, being one of its main lithium hydroxide suppliers. In November, the company announced the extension of a multi-year supply agreement with Tesla through , with a commitment to deliver greater volumes than in .14 Management also indicated that they are working to extend their partnership for and beyond.
In addition, Livent recently announced a 50/50 joint venture with private equity firm Pallinghurst Resources to buy Canada&#;s lithium projects previously managed by Nemaska Lithium. Pallinghurst, through Quebec Lithium Partners, is expected to own 50% of New Nemaska Lithium. Given that arrangement, Livent is expected to see 25% of the potential economic benefits of New Nemaska Lithium.15 The Canadian location can help Livent meet the growing demand of battery grade lithium from North American and Europe.
Contemporary Amperex Technology (CATL): China&#;s EV Battery Crown Jewel
CATL is the world&#;s second-largest battery producer, behind LG Chem. CATL is a Tier 1 battery producer, joining the select group of LG Chem, Panasonic, Samsung SDI, Tesla, SK Innovation, and AESC.16 What distinguishes CATL is that it is the battery maker with the largest number of relationships with OEMs, including Tesla, BMW, Daimler, Geely, Great Wall, Honda, Hyundai, Volkswagen, and NEVS.
Tesla is a key relationship for CATL. In February, the two companies agreed to produce batteries for EVs manufactured at Giga Shanghai, Tesla&#;s second battery megafactory.17 Tesla is currently producing Model 3&#;s at an annualized rate of 250,000 EVs.18 Helped by CATL&#;s cobalt-free lithium iron phosphate (LPF) batteries and local procurement, the Model 3 is the lowest priced premium mid-sized sedan in China at $36,800.19, 20, 21
Recently, CATL also announced a project to roll out a &#;million-mile&#; battery that costs less than $100 kWh by .22 Such a battery could support decades of heavy use for an EV, well beyond the lifespan of an internal combustion engine vehicle.
CATL&#;s relationships with OEMs across multiple regions, especially those in the Chinese and European markets, should allow the company to remain a key player in the EV supply chain. CATL is positioned to continue to grow as EV demand recovers from the economic fallout from COVID-19. Recent reports from the China Association of Automobile Manufacturers show that new energy vehicles sales, which include EVs, increased 105% year-over year in October .23 Sales totaled approximately 160,000 during the month, marking the fourth consecutive month of gains.24
While sales data in China is notable, it&#;s Europe that&#;s eventually projected to command the greatest share of EV sales growth. According to research firm Rho Motion&#;s estimates, EV sales in Europe could double by the end of from due to significant policy support from European regulators.
Conclusion
The four companies highlighted here represent key aspects of the lithium and battery technology ecosystem. But beyond these firms, there are still dozens of other lithium miners and battery producers around the world, who together an enabling the rapid growth of electric vehicles. While many of these firms are relatively unknown by most investors, they could ultimately replace major energy corporation as the next generation of transportation transitions away from fossil fuels.
Related ETFs
LIT: The Global X Lithium & Battery Tech ETF (LIT) invests in the full lithium cycle, from mining and refining the metal, through battery production.
Click the fund name above to view the fund&#;s current holdings. Holdings subject to change. Current and future holdings subject to risk.
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